In Re Mindbody, Inc. Stockholder Litigation
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE MINDBODY, INC., ) CONSOLIDATED STOCKHOLDER LITIGATION ) C.A. No. 2019-0442-KSJM
POST-TRIAL MEMORANDUM OPINION
Submitted: July 28, 2022 Dated: March 15, 2023
Joel Friedlander, Jeffrey M. Gorris, Christopher M. Foulds, FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware; Gregory V. Varallo, Andrew E. Blumberg, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Jeroen van Kwawegen, Christopher J. Orrico, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Co-Lead Counsel for Lead Plaintiffs and Petitioners Luxor Capital Partners, L.P., Luxor Partners Offshore Master Fund, LP, Luxor Wavefront, LP, and Lugard Road Capital Master Fund, LP.
Lisa A. Schmidt, Robert L. Burns, Matthew D. Perri, John M. O’Toole, RICHARDS, LAYTON & FINGER, P.A, Wilmington, Delaware; Matthew Solum, P.C., John Del Monaco, Jeffrey R. Goldfine, KIRKLAND & ELLIS LLP, New York, New York; Counsel for Defendants Richard Stollmeyer, Vista Equity Partners Management, LLC, Torreys Parent, LLC, and Torreys Merger Sub, Inc., and Respondent Mindbody, Inc.
McCORMICK, C. This case arises from the 2019 acquisition of Mindbody, Inc. (“Mindbody” or the
“Company”) by Vista Equity Partners Management, LLC (“Vista”) for $36.50 per share
(the “Merger”). The story begins in 2018, when Mindbody’s visionary founder, Richard
Stollmeyer, had grown frustrated with his inability to monetize his holdings of Mindbody
stock, fearful of the volatility and fickleness of the public markets, and uncertain about his
ability to lead Mindbody through its next stage of its growth. A sale of the Company would
solve his problems, and Stollmeyer decided it was a good time to sell.
Regrettably, Stollmeyer set the sale process in motion largely without the
involvement or knowledge of the Company’s board of directors (the “Board”). In August
2018, Stollmeyer met with a banker that had close relationships with multiple private
equity firms. The banker immediately introduced Stollmeyer to one of those firms, Vista.
Stollmeyer met with Vista shortly after and told Vista that he was looking for a “good
home” for his company and its management team. He later accepted Vista’s invitation to
attend the “CXO Summit” for CEOs of ex-public companies (hence “CXO”) that Vista had
acquired. At the summit, Vista made presentations advertising the immense wealth that
CXOs had achieved by selling to and working for Vista. During the summit, Stollmeyer
texted another Mindbody executive about his “mind blowing” experience and that he
“loved” Vista. Stollmeyer quickly came to believe that selling to Vista gave him the unique
opportunity to both gain liquidity and remain as CEO in pursuit of post-acquisition equity-
based upside. After the Vista conference, Stollmeyer’s focus seemed to shift. He no longer was
interested in just any sale of the Company. He wanted to sell to Vista. And Stollmeyer let
Vista know what he wanted. Vista responded by expressing interest in buying Mindbody.
Vista’s modus operandi is speed. Vista leverages its ability to move quickly from
an expression of interest, through confirmatory diligence, to a firm offer, thereby truncating
the process and reducing interloper risk. Vista calls it “sprinting,” and for Vista, that’s
good business. For a target company seeking to maximize stockholder value, however, a
truncated timeline can present challenges. It takes time to develop alternatives to promote
competition and extract the best price. By sprinting to the finish line, Vista seeks to prevent
a target company from doing that.
Shortly after the CXO Summit and before Vista sent its expression of interest, the
banker who introduced Stollmeyer to Vista warned him about the firm’s need for speed
and the risks of rushing a sale process. In response to this advice, Stollmeyer did not
adequately involve the Board or erect, much less adhere, to speed bumps to ensure a value-
maximizing process. Rather, Vista-smitten Stollmeyer effectively greased the wheels for
Vista by stalling the Board process.
Vista’s expression of interest came in on a Monday. Stollmeyer sent an email to his
management team on a Wednesday telling them not to fear for their jobs and to let
Stollmeyer “socialize” the topic with the Board. On Thursday, Stollmeyer spoke for an
hour with Eric Liaw, the director representative of Institutional Venture Partners XIII, L.P.
(“IVP”). IVP was Mindbody’s largest stockholder, and for reasons of its own, IVP wanted
a near-term exit. Stollmeyer checked Vista’s references on Friday. Meanwhile, Vista
2 accelerated to deal velocity, contracted for a detailed market study, and put itself in a
position to make a firm offer long before other bidders could react.
It was not until the following week that Stollmeyer started dribbling out messages
about Vista’s expression of interest to the other Board members. Unaware of the full extent
of Stollmeyer and Vista’s courtship, the Board did not form a transaction committee to
consider running a sale process until two weeks later. Stollmeyer asked Liaw to chair the
committee, and when Liaw began playing a leadership role, the other directors accepted
his leadership without discussing or voting on who would serve as chair. Liaw lobbied for
the committee to hire the same banker who had already introduced Stollmeyer to Vista,
which it did.
To its credit, the transaction committee established guidelines to cabin
management’s communications with potential bidders, but Stollmeyer ignored them and
tipped Vista that a formal sale process was beginning. And the banker tipped Vista as to
Stollmeyer’s target price. By the time the committee had authorized its banker to contact
financial bidders, Vista was poised to pounce.
In response to the banker’s outreach, Vista made a firm offer. The Board asked
other bidders to respond promptly with best-and-final offers of their own, but they were
still in the early stages of their work and could not respond within that timeframe. The
committee countered, and Vista raised its final bid to $1 per share below where its deal
team thought the deal price would land. Rather than making another counter, the Board
approved it.
3 The plaintiffs are entities affiliated with Luxor Capital Partners, L.P. (collectively
“Luxor’ or “Plaintiffs”).1 Those entities own the second largest block of Mindbody stock.
They filed this action on behalf of a class of Mindbody’s stockholders.2 They claim that
Stollmeyer and the other Board members breached their fiduciary obligations in connection
with the Merger and that Vista aided and abetted those breaches. By the time of trial, all
of the defendants except Stollmeyer and Vista had either settled or been dismissed.
Plaintiffs tried their claims against Stollmeyer and Vista (together, “Defendants”).
Plaintiffs advance two main theories of breach. The first is that Stollmeyer breached
his fiduciary duties by tilting the process in favor of Vista. The second is that Stollmeyer
committed disclosure violations by failing to disclose facts about the sale process and
omitting information concerning Mindbody’s actual revenue results.
The facts of this case offer multiple analytical frameworks to choose from. The
parties agree that one possible framework is enhanced scrutiny under Revlon, Inc. v.
MacAndrews & Forbes Holdings, Inc.3 Under that standard of review, Stollmeyer loses.
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE MINDBODY, INC., ) CONSOLIDATED STOCKHOLDER LITIGATION ) C.A. No. 2019-0442-KSJM
POST-TRIAL MEMORANDUM OPINION
Submitted: July 28, 2022 Dated: March 15, 2023
Joel Friedlander, Jeffrey M. Gorris, Christopher M. Foulds, FRIEDLANDER & GORRIS, P.A., Wilmington, Delaware; Gregory V. Varallo, Andrew E. Blumberg, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Jeroen van Kwawegen, Christopher J. Orrico, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Co-Lead Counsel for Lead Plaintiffs and Petitioners Luxor Capital Partners, L.P., Luxor Partners Offshore Master Fund, LP, Luxor Wavefront, LP, and Lugard Road Capital Master Fund, LP.
Lisa A. Schmidt, Robert L. Burns, Matthew D. Perri, John M. O’Toole, RICHARDS, LAYTON & FINGER, P.A, Wilmington, Delaware; Matthew Solum, P.C., John Del Monaco, Jeffrey R. Goldfine, KIRKLAND & ELLIS LLP, New York, New York; Counsel for Defendants Richard Stollmeyer, Vista Equity Partners Management, LLC, Torreys Parent, LLC, and Torreys Merger Sub, Inc., and Respondent Mindbody, Inc.
McCORMICK, C. This case arises from the 2019 acquisition of Mindbody, Inc. (“Mindbody” or the
“Company”) by Vista Equity Partners Management, LLC (“Vista”) for $36.50 per share
(the “Merger”). The story begins in 2018, when Mindbody’s visionary founder, Richard
Stollmeyer, had grown frustrated with his inability to monetize his holdings of Mindbody
stock, fearful of the volatility and fickleness of the public markets, and uncertain about his
ability to lead Mindbody through its next stage of its growth. A sale of the Company would
solve his problems, and Stollmeyer decided it was a good time to sell.
Regrettably, Stollmeyer set the sale process in motion largely without the
involvement or knowledge of the Company’s board of directors (the “Board”). In August
2018, Stollmeyer met with a banker that had close relationships with multiple private
equity firms. The banker immediately introduced Stollmeyer to one of those firms, Vista.
Stollmeyer met with Vista shortly after and told Vista that he was looking for a “good
home” for his company and its management team. He later accepted Vista’s invitation to
attend the “CXO Summit” for CEOs of ex-public companies (hence “CXO”) that Vista had
acquired. At the summit, Vista made presentations advertising the immense wealth that
CXOs had achieved by selling to and working for Vista. During the summit, Stollmeyer
texted another Mindbody executive about his “mind blowing” experience and that he
“loved” Vista. Stollmeyer quickly came to believe that selling to Vista gave him the unique
opportunity to both gain liquidity and remain as CEO in pursuit of post-acquisition equity-
based upside. After the Vista conference, Stollmeyer’s focus seemed to shift. He no longer was
interested in just any sale of the Company. He wanted to sell to Vista. And Stollmeyer let
Vista know what he wanted. Vista responded by expressing interest in buying Mindbody.
Vista’s modus operandi is speed. Vista leverages its ability to move quickly from
an expression of interest, through confirmatory diligence, to a firm offer, thereby truncating
the process and reducing interloper risk. Vista calls it “sprinting,” and for Vista, that’s
good business. For a target company seeking to maximize stockholder value, however, a
truncated timeline can present challenges. It takes time to develop alternatives to promote
competition and extract the best price. By sprinting to the finish line, Vista seeks to prevent
a target company from doing that.
Shortly after the CXO Summit and before Vista sent its expression of interest, the
banker who introduced Stollmeyer to Vista warned him about the firm’s need for speed
and the risks of rushing a sale process. In response to this advice, Stollmeyer did not
adequately involve the Board or erect, much less adhere, to speed bumps to ensure a value-
maximizing process. Rather, Vista-smitten Stollmeyer effectively greased the wheels for
Vista by stalling the Board process.
Vista’s expression of interest came in on a Monday. Stollmeyer sent an email to his
management team on a Wednesday telling them not to fear for their jobs and to let
Stollmeyer “socialize” the topic with the Board. On Thursday, Stollmeyer spoke for an
hour with Eric Liaw, the director representative of Institutional Venture Partners XIII, L.P.
(“IVP”). IVP was Mindbody’s largest stockholder, and for reasons of its own, IVP wanted
a near-term exit. Stollmeyer checked Vista’s references on Friday. Meanwhile, Vista
2 accelerated to deal velocity, contracted for a detailed market study, and put itself in a
position to make a firm offer long before other bidders could react.
It was not until the following week that Stollmeyer started dribbling out messages
about Vista’s expression of interest to the other Board members. Unaware of the full extent
of Stollmeyer and Vista’s courtship, the Board did not form a transaction committee to
consider running a sale process until two weeks later. Stollmeyer asked Liaw to chair the
committee, and when Liaw began playing a leadership role, the other directors accepted
his leadership without discussing or voting on who would serve as chair. Liaw lobbied for
the committee to hire the same banker who had already introduced Stollmeyer to Vista,
which it did.
To its credit, the transaction committee established guidelines to cabin
management’s communications with potential bidders, but Stollmeyer ignored them and
tipped Vista that a formal sale process was beginning. And the banker tipped Vista as to
Stollmeyer’s target price. By the time the committee had authorized its banker to contact
financial bidders, Vista was poised to pounce.
In response to the banker’s outreach, Vista made a firm offer. The Board asked
other bidders to respond promptly with best-and-final offers of their own, but they were
still in the early stages of their work and could not respond within that timeframe. The
committee countered, and Vista raised its final bid to $1 per share below where its deal
team thought the deal price would land. Rather than making another counter, the Board
approved it.
3 The plaintiffs are entities affiliated with Luxor Capital Partners, L.P. (collectively
“Luxor’ or “Plaintiffs”).1 Those entities own the second largest block of Mindbody stock.
They filed this action on behalf of a class of Mindbody’s stockholders.2 They claim that
Stollmeyer and the other Board members breached their fiduciary obligations in connection
with the Merger and that Vista aided and abetted those breaches. By the time of trial, all
of the defendants except Stollmeyer and Vista had either settled or been dismissed.
Plaintiffs tried their claims against Stollmeyer and Vista (together, “Defendants”).
Plaintiffs advance two main theories of breach. The first is that Stollmeyer breached
his fiduciary duties by tilting the process in favor of Vista. The second is that Stollmeyer
committed disclosure violations by failing to disclose facts about the sale process and
omitting information concerning Mindbody’s actual revenue results.
The facts of this case offer multiple analytical frameworks to choose from. The
parties agree that one possible framework is enhanced scrutiny under Revlon, Inc. v.
MacAndrews & Forbes Holdings, Inc.3 Under that standard of review, Stollmeyer loses.
He did not strive in good faith to pursue the best transaction reasonably available. He
instead pursued a fast sale to Vista to further his personal interests. Because he tilted the
1 Plaintiffs are Luxor Capital Partners, L.P., Luxor Partners Offshore Master Fund, LP, Luxor Wavefront, LP, and Lugard Road Capital Master Fund, LP. 2 Luxor also petitioned for appraisal and litigated the appraisal claim in parallel with the breach of fiduciary duty claims. This decision does not resolve Luxor’s claim for appraisal. 3 506 A.2d 173 (Del. 1986).
4 sale process in Vista’s favor for personal reasons, the process did not achieve a result that
falls within the range of reasonableness.
As a remedy, Plaintiffs seek the lost transaction price that Vista would have paid if
the process had not been tilted in its favor. Plaintiffs peg that figure at $40 per share. This
decision accepts Plaintiffs’ theory of liability but rejects the evidentiary basis for a $40 per
share figure. The record demonstrates that Vista would have paid $37.50 per share.
Stollmeyer is therefore liable for $1 per share.
In contrast to Stollmeyer, Vista prevails on the sale-process claim, but only because
of a procedural foot fault. Plaintiffs failed to assert a claim against Vista for aiding and
abetting in the sale-process breaches until trial. Plaintiffs tried to fix their error through a
motion to amend the pleadings to conform to the evidence presented at the close of trial,
but to grant that motion would be prejudicial to Vista.
On the disclosure claim, however, Plaintiffs prevail against both Stollmeyer and
Vista. Plaintiffs proved that Stollmeyer breached his duty of disclosure. He failed to
disclose the full extent of his involvement with Vista, which was a material omission.
Plaintiffs proved that Vista aided and abetted Stollmeyer’s breach by failing to correct the
proxy materials to include a full and fair description of its own interactions with
Stollmeyer. Vista was contractually obligated to review the proxy materials and inform
the Company if there were material omissions from the proxy materials. The record shows
that Vista personnel who interacted with Stollmeyer reviewed the proxy materials. Vista
knew about its own interactions, and it was evident that Stollmeyer was not disclosing
them. Vista knowingly participated in the breach by not speaking up.
5 As a remedy for the disclosure claims, Plaintiffs seek compensatory damages
calculated using a quasi-appraisal methodology. That remedy, however, requires proof of
reliance and causation, which Plaintiffs made no effort to demonstrate. Plaintiffs,
therefore, are only entitled to nominal damages as a remedy.
To set nominal damages, this decision turns to a venerated authority—Weinberger
v. UOP, Inc.4 There, Chancellor Brown encountered similar difficulty in compensating the
minority stockholders for an obvious wrong when there was no mathematical basis for
deriving a damages figure. He reasoned that “equity will not suffer a wrong without a
remedy.”5 The facts of that case demonstrated that the acquirer would have paid at least
$1 more for the target, and at that price, the transaction still would be profitable for the
acquirer. Engaging in a classic exercise of equitable discretion, he awarded nominal
damages in the amount of $1 per share.
Similar case-specific factors warrant the same relief here. The record demonstrates
that Vista had authority to bid up to $40 per share, but that figure was a stretch. Internal
Vista communications show that Vista was prepared to increase its bid to $37.50 per share,
and the most senior person on the deal team predicted that the bidding would end at that
price. Vista’s modeling demonstrates that a deal at that price remained profitable for Vista.
As in Weinberger, the court exercises its equitable discretion to award damages of $1 per
4 1985 WL 11546 (Del. Ch. Jan. 30, 1985), aff’d sub nom. Weinberger v. UOP, Inc., 497 A.2d 792 (Del. 1985). 5 Id. at *9.
6 share for the disclosure violations. Stollmeyer and Vista are jointly and severally liable for
the resulting amount.
Plaintiffs are only entitled to one recovery. It makes no difference whether
Stollmeyer pays $1 per share in damages for the sale-process claims, or whether Stollmeyer
and Vista pay $1 per share in damages for the disclosure claims.
Plaintiffs are awarded pre- and post-judgment interest at the legal rate, compounded
monthly, with the rate varying with changes in the reference rate. Plaintiffs are awarded
costs as the prevailing party.
I. FACTUAL BACKGROUND
The record comprises 1,865 joint trial exhibits, trial testimony from eighteen fact
and six expert witnesses, deposition testimony from twenty-four fact witnesses, and 123
stipulations of fact in the pre-trial order.6 These are the facts as the court finds them after
trial.
6 C.A. No. 2019-0442-KSJM, Docket (“Dkt.”) 492, Joint Schedule of Evid.; Dkt. 445, Pre- Trial Stipulation and Order (“PTO”). This decision cites to trial exhibits (by “JX” number); the trial transcript, Dkts. 461–68 (by “Trial Tr. at” page, line, and witness); the post-trial oral argument, Dkt. 493 (by “Post-Trial Oral Arg. Tr. at” page and line); and the deposition transcripts of Dominic Calvani, Christopher Cernich (expert), Jeffrey Chang, Court Cunningham, Jamie d’Almeida (expert), Daniel Fischel (expert), Doug Friedman, Gail Goodman, David Handler, Craig Heinle, Cipora Herman, Michael Kass, Derek Klomhaus, Christian Leone, Eric Liaw, Kimberly Lytikainen, Michael Mansbach, Kevin Murphy (expert), Drew Pascarella (expert), Monti Saroya, Brian Sheth, Graham Smith, Nicolas Stahl, Richard Stollmeyer, Vista Equity Partners LLC (30(b)(6)), and Brett White (by the deponent’s last name and “Dep. Tr. at” page and line).
7 A. Setting The Stage
Mindbody founder Stollmeyer is the key protagonist in this drama. Stollmeyer is
an impressive person. He started his business career as a child helping in his parents’ retail
lighting fixture store.7 He attended the United States Naval Academy and served as a
nuclear submarine officer for six years after graduation.8 He next landed a position as a
program manager at Vandenberg Air Force Base, which took him to California’s Central
Coast.9
In the mid-1990s, a friend showed Stollmeyer software he had written to support
owners of yoga, Pilates, and spinning studios.10 This software inspired Stollmeyer to
launch Mindbody with his friend.11 By fall 2000, Stollmeyer “leapt off a cliff,” in his
words, by quitting his engineering job and taking out a second mortgage to start Mindbody
in his garage in San Luis Obispo.12
From these humble beginnings, Stollmeyer grew Mindbody into a software-as-a-
service (“SaaS”) platform that serves the fitness, wellness, and beauty industry. Stollmeyer
took Mindbody public in 2015.13
7 Trial Tr. at 336:22–337:9 (Stollmeyer). 8 Id. at 337:22–338:16 (Stollmeyer). 9 Id. at 338:17–339:3 (Stollmeyer). 10 Id. at 339:13–17 (Stollmeyer). 11 Id. at 339:7–340:15 (Stollmeyer). 12 Id. at 340:2–18 (Stollmeyer). 13 PTO ¶ 89.
8 1. Stollmeyer Is Ready To Sell.
By 2018, Stollmeyer had grown Mindbody to over $1 billion market capitalization,
yet Stollmeyer had never experienced a big liquidity event.14 And he had made substantial
financial commitments in the meantime. Stollmeyer had (i) invested nearly $1 million into
his wife’s wellness company, (ii) invested at least $300,000 into “Stollmeyer Technologies,
LLC,” (iii) loaned his brothers and his former business partner money for their own real
estate purchases, and (iv) pledged $3 million to a local college, of which $2.4 million was
unpaid.15
Stollmeyer described his unhappiness with his pre-Merger financial situation in a
post-Merger interview for Alejandro Cremades’s “dealmakers” podcast.16 During the
interview, Stollmeyer described how “98% of [his] net worth” was “locked inside”
Mindbody’s “extremely volatile” stock, while Stollmeyer could only sell “tiny bits” of his
stake in the public market under his 10b5-1 plan.17 Stollmeyer described those sales as
“kind of like sucking through a very small straw”:
[F]or the entrepreneur or particularly for the CEO, [an IPO] is not a liquidity event. Your capital is locked inside the business, and you can sell tiny bits of it, called the 10b5-1 plan where you decide essentially a year in advance, a couple of quarters in advance, you come up with a plan that says sell off a little bit on these predefined dates. It doesn’t matter if the stock got hammered, it doesn’t matter if the stock’s high. So, it’s kind
14 See JX-1441 at 10 (“[F]or the entrepreneur or particularly for the CEO, [an IPO] is not a liquidity event.”). 15 JX-1142 at 2; Dkt. 474 (“Defs.’ Demonstrative 12”) at 1–2. 16 JX-1441. 17 Id. at 10.
9 of like sucking through a very small straw. For me, I had been at it for a long time. . . .
We were public in 2015, so I’d been at it for 15 years. We would have public investors. I would have them challenge me that I was selling my own stock, and he was like, “Don’t you believe in your own company, Rick?” 98% of my net worth is in the stock of my company, which is extremely volatile. I’m in my 50s now, and I’ve got kids in college. What kind of question is that?18
In February 2018, Stollmeyer asked his financial advisor to “estimate [his] cash
position” in light of his impending expenses.19 Stollmeyer stated that the timing and
amount of his 10b5-1 sales were “top of mind” because of “greater than expected H1 cash
outlays[.]”20 To meet his commitments, Stollmeyer had to “dig[] into [his] LOC [line of
credit].”21
Stollmeyer made similar statements in his book on building a wellness business,
which was published in 2021 while this litigation was pending.22 In a chapter about early
financing, he described his efforts to obtain money for Mindbody from family and friends,
and then referenced his own experience “contributing a significant portion of the cash
needed to help my nephew, wife, and son start their own businesses.”23 Stollmeyer also
18 Id. 19 JX-145 at 1. 20 Id. 21 Id. 22 JX-1647 (titled Building a Wellness Business That Lasts). 23 Id. at 183.
10 explained that completing the $1.9 billion Merger “doesn’t make me a billionaire.”24 He,
nevertheless, took “great pleasure” in knowing that “after many years of living at or near
the precipice of financial ruin, my family and I don’t have to worry about money
anymore.”25
At trial, Stollmeyer denied that he needed liquidity in early 2018.26 To bolster his
testimony, Stollmeyer introduced testimony from his financial advisor and from an expert
on executive compensation.27 The financial advisor claimed that Stollmeyer had never
expressed concerns about liquidity pressures that would require him to sell off his entire
Mindbody stake.28 The executive compensation expert reviewed Stollmeyer’s financial
decisions during the five years preceding the Merger and opined that Stollmeyer did not
seem to be in need of liquidity.29 He conceded that Stollmeyer faced significant cash
demands in the period leading up to the Merger.30 Both the expert and Stollmeyer’s
financial advisor acknowledged that Stollmeyer frequently relied on a line of credit to pay
expenses.31
24 Id. at 181. 25 Id. 26 Trial Tr. at 486:7–20 (Stollmeyer). 27 Id. at 240:10–241:5 (Calvani); id. at 1813:16–1814:1 (Murphy). 28 Id. at 238:5–24 (Calvani). 29 Id. at 1821:18–1823:17 (Murphy). 30 Id. at 1843:12–1849:19 (Murphy). 31 Id. at 226:16–227:4 (Calvani); id. at 1813:3–5 (Murphy).
11 Ultimately, Stollmeyer’s own pre-litigation and intra-litigation statements reflecting
his personal and financial circumstances are far more persuasive than the trial testimony of
Stollmeyer or the other witnesses. Stollmeyer said it himself: He was tired. He was tired
of “sucking through a very small straw.” He was ready to sell.
And 2018 seemed the time to do it. One reason was that Stollmeyer held shares of
super-voting Class B stock that would automatically convert to shares of common stock in
October 2021.32 As of 2018, those shares enabled Stollmeyer to control 19.8% of
Mindbody’s fully diluted voting power, giving him the second largest block of votes.33
After October 2021, those same shares would carry less than 4% of the Company’s fully
diluted voting power.34 Tactically, it was best to for Stollmeyer to move before the sunset
loomed, so that another party seeking to neutralize his influence did not try to wait him out.
Another reason, discussed more below, was that Mindbody’s largest stockholder—
IVP—faced the same sunset provision and was looking to exit.35 If that happened, then the
Board seat held by Liaw would likely transition to a representative from Luxor. Stollmeyer
had spoken with both firms. He knew that IVP wanted a near-term sale, while Luxor did
not.36 It behooved Stollmeyer to strike while his major ally also held a position of power.
32 PTO ¶ 70. 33 Id. 34 Id. ¶¶ 70, 77; JX-1138 at 90. 35 PTO ¶¶ 70, 77. 36 Trial Tr. at 33:1–34:7 (Friedman).
12 Additionally, Stollmeyer was exhausted by the struggles that Mindbody faced
during 2018. The Company made two strategic acquisitions at the beginning of the year:
FitMetrix, a company that integrated workout equipment and wearable fitness trackers with
performance feedback technology, and Booker, a cloud-based business management
company for salons and spas.37 Mindbody also shifted its sales strategy to focus on high-
value customers.38 In addition to integrating the acquisitions and reorienting the sales
strategy, Stollmeyer was simultaneously serving as the CEO and CTO of Mindbody after
the Board terminated the CTO in April.39 During trial, Stollmeyer testified at length about
the difficulties he faced.40 He stated that by late 2018, he was “physically and emotionally
exhausted[.]”41 Understandably, he wanted out.
2. Mindbody’s Largest Stockholder Is Ready To Sell.
In 2018, the Company’s largest stockholder was IVP, a venture capital investor that
had held Mindbody super-voting Class B stock shares since the Company’s IPO in 2015.42
Through a combination of super-voting Class B stock and regular Class A stock, IVP held
shares carrying approximately 24.6% of the Company’s voting power.43 Together, IVP
37 PTO ¶ 90. 38 JX-293 at 105; Trial Tr. at 51:1–17 (Friedman); id. at 1991:10–20 (White). 39 Trial Tr. at 359:21–360:14 (Stollmeyer). 40 Id. at 669:18–22 (Stollmeyer); see also id. at 1991:10–1992:17 (White). 41 Id. at 364:12–22 (Stollmeyer). 42 JX-1138 at 90 (showing IVP’s holdings in Mindbody Class A and Class B shares); PTO ¶ 77; Trial Tr. at 1401:2–13 (Liaw). 43 PTO ¶ 77.
13 and Stollmeyer controlled over 44% of the Company’s voting power.44 After October
2021, however, the Class B stock would automatically convert into Class A, and IVP’s
share of the Company’s fully diluted voting power would fall to 6%.45
Liaw served as IVP’s representative on the Board. No other institutional investors
enjoyed representation on the Board.46
Liaw was one of IVP’s eight general partners and thus owed fiduciary duties to IVP.
That meant that if IVP wanted a near-term sale, then Liaw had a fiduciary duty to IVP and
its investors to pursue a near-term sale. But if a near-term sale was not in the best interests
of the Company, then Liaw also had a fiduciary duty as a director of the Company not to
pursue a near-term sale. Liaw’s position was rife with the potential for conflict.
In March 2018, Liaw emailed Stollmeyer that IVP “may be contemplating a
disposition” of its Mindbody stock.47 IVP had internal reasons to exit. By August 2018,
IVP’s position in Mindbody reflected an unrealized gain of $68 million.48 During a
meeting on August 13, IVP’s partners “agreed to target at least $200M in additional
liquidity by year end.”49 Mindbody was listed as one of five positions that would contribute
44 Id. ¶¶ 70, 77. 45 JX-1138. 46 Trial Tr. at 1394:9–13 (Liaw). 47 JX-153. 48 JX-224 at 1; Trial Tr. at 1499:4–22 (Liaw). 49 JX-236 at 2.
14 to meeting this goal, and Liaw was directed to “evaluate/recommend evaluate [sic]
distributing 50% of position by 12/15[.]”50
3. The Other Mindbody Directors
In addition to Stollmeyer and Liaw, there were six other members of the Board:
Katherine Blair Christie, Court Cunningham, Gail Goodman, Cipora Herman, Adam
Miller, and Graham Smith.51
Christie had served in multiple C-suite positions, including as Chief Development
Officer at Landit Inc. and Chief Marketing Officer at Cisco Systems, Inc.52 She had also
been a director of museums, institutes, and societies.53 She had not served on the board of
any other for-profit company and had no experience with a sale process.54
Cunningham had been an executive officer of several private companies, including
as CEO of Yodle Inc.55 Cunningham participated in the sales process for Yodle in 2016 to
Web.com.56 Cunningham had also served two other private company boards.57
50 Id. 51 PTO ¶ 79. 52 JX-1483 at 1–2. 53 Id. at 3. 54 Id. at 1. 55 JX-1482 at 1; Trial Tr. at 875:16–876:9 (Cunningham). 56 Trial Tr. at 875:16–876:9 (Cunningham). 57 JX-1482 at 1.
15 Cunningham had not served on any public company board aside from Mindbody and had
no experience selling a public company.58
Herman had been the Vice President of Finance during Facebook’s early years and
stayed with that company through its IPO.59 Herman then served as the CFO for the San
Francisco 49ers and the CFO for the Los Angeles 2028 Olympic Games Committee.60
Herman had not served on the board of any public company before Mindbody and had no
experience selling a public company.61
Miller founded and served as CEO, President, and director of Cornerstone
OnDemand, Inc., which he took public.62 He had no experience selling a public company.63
Smith had been CFO of large software companies, including Salesforce, Advent
Software, and Vitria.64 He had also served on the boards of several public companies that
specialized in software.65 He had no experience selling a public company.
Goodman was the lead independent director of Mindbody at the time of the sale
process and the only director with experience selling a public company.66 She had served
58 Id. 59 Trial Tr. at 1870:14–1872:19 (Herman). 60 Id. at 1870:14–1872:19 (Herman). 61 Id. at 1874:12–14 (Herman). 62 JX-168 at 15. 63 Id. 64 Trial Tr. at 2155:5–9 (Smith). 65 Id. at 2154:7–2155:3 (Smith). 66 Id. at 1285:4–18 (Goodman).
16 as the president and CEO of a publicly traded online marketing and SaaS company for over
15 years, and she participated in the sale of that company to Endurance International for
$1 billion.67
4. Mindbody’s Prospects
The directors testified that when Mindbody embarked on its sale process, they
viewed its prospects as highly uncertain for many reasons.
For starters, the integration of FitMetrix and Booker had been rocky. Herman
recalled participating in a Q2 2018 guide-down based on a reduction in sales productivity
“during this integration period.”68 The Company’s CFO Brett White testified that the
investments were underperforming.69 In contemporaneous statements to the Board and the
Company’s investors, however, Stollmeyer expressed optimism about these investments.
At Mindbody’s annual analyst conference in September 2018, he declared in his
presentation slides that “The Integration is Working.”70 Goodman also believed the
investments would pay off.71
The directors also cited the shift toward high-value customers. Cunningham
testified that the optimism about high-value subscribers “ended up not panning out over
67 Id. at 1250:23–1252:12 (Goodman). 68 Id. at 1880:19–1881:13 (Herman). 69 Id. at 2041:23–2042:12 (White). 70 JX-293 at 7. 71 Trial Tr. at 1366:20–22 (Goodman).
17 the subsequent year [2018].”72 Liaw and White testified that Mindbody’s high-value
subscribers had declined in 2018 for two quarters in a row.73 Again, the contemporaneous
documents paint a different picture, with White’s slides at the same conference proclaiming
“Our Customer Base is Healthier than Ever”74 and “Subscriber Base Shifting To Higher
Priced Tiers.”75
Mindbody’s results for Q3 2018 were mixed. The highlights were an increase of
19% in year-over-year average revenue per subscriber and the first organic increase in net
new subscribers in two years.76 The lowlights included a revenue miss of $2.4 million
against Mindbody’s internal plan and $0.2 million against the analyst consensus.77
The consensus view was that if Mindbody could weather a year or so of challenges,
then the future was bright. Stollmeyer estimated in October 2018 that “[f]ull realization of
the synergies” from the Booker and FitMetrix acquisitions “will take 1–2 years.”78 At trial,
he confirmed that expectation.79 By October 2018, Goodman “absolutely believed the
investments would pay off” and saw no need for cash infusions.80
72 Id. at 882:3–883:3 (Cunningham). 73 Id. at 1461:20–1462:7 (Liaw); id. at 2090:1–8 (White). 74 JX-293 at 104. 75 Id. at 105. 76 JX-414 at 3. 77 Id. at 3. 78 JX-476 at 2. 79 Trial Tr. at 610:17–611:10 (Stollmeyer). 80 Id. at 1366:20–1367:1 (Goodman).
18 At trial, Stollmeyer and Vista sought to show that because of the risks that the
Company faced, the Board viewed a sale as the best option for stockholders, and there is
support for that conclusion in the record.81 Yet, crediting that the Board reached that
conclusion does not require crediting that the Merger was the best transaction reasonably
available, and that was because of how the sale process played out. The Board comprised
many talented individuals, but only Goodman had any experience selling a public
company. The Company’s outside counsel described the Board as “super green” and
recommended thorough training regarding what a process would entail.82
At the time the Board embarked on a sale process, the Board was not aware of the
conflicts afoot. Although Defendants proved that the Board knew that Stollmeyer wanted
to resign as CEO within two to three years,83 the Board did not know that he wanted to sell
the Company sooner or that IVP was in lockstep with Stollmeyer toward this goal.
Stollmeyer did not disclose his need for liquidity to any Mindbody director at any time
81 See id. at 1347:19–1348:5 (Goodman) (testifying that she “thought this was an excellent price that would derisk the future for our shareholders”); id. at 2188:21–2189:17 (Smith) (testifying that “the premium that the company was getting in a cash transaction was definitely worth accepting versus the uncertainty of potentially several years of uncertain execution”). 82 JX-577. 83 Goodman testified that Stollmeyer approached her in August 2018 to suggest that the Board start looking for a successor because the next year would be his last year, that “he openly admitted that he was getting tired,” and that she informed the other directors of Stollmeyer’s intentions. Trial Tr. at 1265:5–1266:8 (Goodman). Herman and Cunningham testified that the Board discussed potential CEO replacements at their September 2018 dinner. Id. at 1890:15–1891:16 (Herman); id. at 884:21–885:8 (Cunningham).
19 during the sale process. Neither Stollmeyer nor Liaw disclosed IVP’s desire to exit. And
Stollmeyer concealed many of his interactions with Vista from the Board.
B. Events Before The Board Process
On August 7, 2018, Stollmeyer met with Jeff Chang, an investment banker with
Qatalyst Partners.84 Stollmeyer and Chang had been meeting from time to time over the
course of five years.85 Chang testified that before August 2018, Stollmeyer “had never
been open-minded to having dialogue” with private equity.86 During the August 7 meeting,
however, something was different, and Stollmeyer was “more open to having a dialogue.”87
Stollmeyer had kept in contact with a couple of private equity shops.88 Before
Mindbody’s IPO, Vista and Thoma Bravo had each approached Mindbody about an
acquisition.89 Stollmeyer thought they would be good places to start. Chang had a good
relationship with Vista. He had sold about four or five companies to them and advised
84 JX-231 at 1. 85 Trial Tr. at 255:14–257:1 (Chang). 86 Id. at 255:20–259:1 (Chang). 87 Id. at 260:18–24 (Chang). 88 Id. at 362:23–363:13 (Stollmeyer) (regarding communications throughout 2014–2017); id. at 365:11–367:16 (Stollmeyer) (regarding communications with Thoma Bravo and H&F in 2016 and 2018); JX-618 (reflecting communications with Thoma Bravo); JX-243 (reflecting communications with H&F); JX-1804 at 2 (reflecting Vista’s reconnection with Stollmeyer in 2017); JX-176 (reflecting May 2018 meeting with CCO of GoDaddy); JX- 1543 (reflecting February 2018 meeting with Qatalyst); JX-1509 (reflecting August 2018 meeting with Centerview); JX-196 (reflecting June 2018 meeting with TCV). 89 JX-231 at 1.
20 Vista or its affiliates.90 Monti Saroya, a Vista principal, had been involved in transactions
where Chang represented the seller.
1. Qatalyst Reconnects Stollmeyer And Vista.
During the August 7 lunch meeting, Chang offered to reconnect Stollmeyer to Vista.
Immediately after lunch, Chang did so by email.91 Chang wrote to Saroya:
I was with Rick [Stollmeyer] today, . . . . I know you all have met before but thought a direct thread might be helpful to get you, Brian [Sheth] and Rick together some time in the future. Nothing pressing, but thought it’d be helpful for you all to meet.92
Saroya responded about seven minutes later to set up a meeting.93
Shortly after, Chang forwarded the email chain to George Boutros, a senior partner
at Qatalyst.94 In the forwarding email, Chang provided the following report:
Known them [Mindbody] since pre-IPO and founder/CEO [Stollmeyer] has never wanted to sell. Vista and Thoma [Bravo] tried to acquire them pre-IPO.
Met with him [Stollmeyer] today and he immediately talked about how he is tired of being public and wanted me to re- connect him w[ith] Vista and Thoma. Probably a 2019 deal is my guess.95
90 Trial Tr. at 251:3–254:24 (Chang); see also JX-591 at 2. 91 JX-230. 92 Id. at 2. 93 Id. at 1. 94 JX-231. 95 Id. at 1.
21 By 7 p.m. that same day, Saroya and Stollmeyer had scheduled a meeting for “late Aug/
early Sep.”96
Chang waited a week to connect Stollmeyer with two other private equity firms,
Thoma Bravo and Hellman & Friedman (“H&F”).97 Stollmeyer did not meet with those
firms until mid-October and early November.98
2. Stollmeyer Takes Luxor’s Temperature.
On August 9, 2019, two days after reconnecting with Vista, Stollmeyer met with
Luxor, which had owned shares of Mindbody since 2016. By August 2018, Luxor had
accumulated a 14% stake in the Company,99 but Luxor does not fit the mold of an “activist”
investor. Luxor does not seek to take control of companies. It is not in the habit of
demanding to inspect books and records of its investments. And it had not petitioned for
appraisal or sought to be lead plaintiff in a representative action before this lawsuit.100
Stollmeyer wanted to know where Luxor stood on a sale. If IVP followed through
on its stated intention to exit, Luxor would be Mindbody’s largest public investor. Even if
IVP did not exit, Luxor would become Mindbody’s largest investor as soon as the super-
voting Class B shares converted to Class A in October 2021.
96 JX-230 at 1. 97 JX-238; JX-239; JX-250 at 2. 98 JX-566; see also JX-317; Stollmeyer Dep. Tr. at 292:18–293:2. 99 JX-266 at 3. 100 Trial Tr. at 17:1–18 (Friedman).
22 Historically, Luxor had worked constructively with Mindbody management and the
Board. And Luxor was extremely knowledgeable of Mindbody’s business. Luxor
conducted substantial research on its investment in Mindbody, including collecting and
analyzing data on the number of users downloading the Mindbody app monthly, the
transaction behavior of Mindbody customers, and the progress of Mindbody’s dynamic
pricing model.101 Stollmeyer described Luxor as having “unparalleled knowledge of MB,”
“unfettered access to [CFO] Brett White and me for years,” and as being “more
[knowledgeable] about this company than any other public investor.”102
Stollmeyer had met with Luxor as recently as June 2018. At that point, the
discussion focused on having Luxor’s Doug Friedman join the Board.103 Stollmeyer was
initially receptive to the idea, as he expected Liaw to be leaving his position on the Board,
making room for an alternative institutional stockholder representative.104 By the August 9
meeting, however, Stollmeyer’s tune had changed, and he wanted to know whether Luxor
would support a sale.105 Friedman responded that Luxor would not support a near-term
sale because Luxor expected much higher return over the long term.106
101 Trial Tr. at 26:7–29:5 (Friedman). 102 JX-1118 at 2; Stollmeyer Dep Tr. at 816:16–819:15. 103 Trial Tr. at 429:10–431:24 (Stollmeyer). 104 Id. at 429:10–431:24 (Stollmeyer). 105 Id. at 32:20–34:7 (Friedman); id. at 33:1–34:7 (Friedman); id. at 429:10–431:24 (Stollmeyer). 106 Id. at 33:1–34:7 (Friedman).
23 Concerned about resistance to a sale, after the August 9 meeting, Stollmeyer
instructed one of Mindbody’s long-time advisers, David Handler of Centerview Partners
LLC (“Centerview”), to create a comprehensive dossier on Luxor, including any activist
campaigns.107
3. Stollmeyer Meets With Vista.
On September 4, 2018, Stolleyer met with Saroya and another Vista representative,
senior vice president Nicolas Stahl.108 Saroya and Stahl were the lead Vista representatives
for the Mindbody deal.
Saroya and Stahl testified at trial that they did not recall the specifics of the
September 4 meeting. Stahl, however, prepared a contemporaneous summary of the
meeting consistent with Vista’s practices.109 It stated:
We met with Rick [Stollmeyer]. Rick mentioned he would like to find a good home for his company. He is getting tired and expects to stay in his seat 2-3 more years. He has 2 folks (one from Booker acq[uisition]) that he thinks could succeed him.110
During the meeting, Saroya invited Stollmeyer to join them for the CEO dinner at Vista’s
CXO Summit.111 Saroya did not remember any of those details. He recalled that they
107 JX-265; JX-266; Trial Tr. at 528:5–12 (Stollmeyer). 108 JX-264; JX-277. 109 Trial Tr. at 781:9–782:8 (Stahl). 110 JX-277. 111 JX-264.
24 “talked about how excited he is for the market, how well Mindbody has done historically,
and how he thinks Mindbody has a bright future.”112
Stollmeyer did not have Board authorization to disclose that he was planning to step
down in two or three years or that he had two people in mind to succeed him.113 After the
September 4 meeting, Stollmeyer did not tell the Board that he had disclosed this
information to Vista.114 Stollmeyer admitted that he did not provide this information to
any other potential acquirers in August, September, or October 2018.115
The fact that Stollmeyer told Vista that he was looking for a “good home” for
Mindbody was a bad fact for Defendants. It indicated that Stollmeyer had tipped off Vista
that Mindbody was considering a near-term sale and that Stollmeyer would be leading the
process. So, at trial, Stollmeyer denied it. He asserted that he never would have used the
words “good home,” claiming “the idea that I was looking for something like that and I
would say that to them, it just doesn’t feel like something I would say. I don’t recall saying
it.”116 He also said that he would never refer to Mindbody as “my” company.117 That
testimony was not credible. As to finding a “good home” for Mindbody, Stahl used this
“home” terminology describing Stollmeyer’s position in not one, but two contemporaneous
112 Trial Tr. at 1033:21–1034:4 (Saroya). 113 Id. at 524:15–525:7 (Stollmeyer). 114 Stollmeyer Dep Tr. at 298:23–300:8; Lytikainen Dep Tr. at 85:6–89:17; Liaw Dep Tr. at 134:10–135:11. 115 Trial Tr. at 524:15–525:7 (Stollmeyer). 116 Id. at 374:18–375:13 (Stollmeyer). 117 Id.
25 documents.118 As to calling Mindbody “my company,” Stollmeyer used this exact
terminology during his post-Merger podcast interview with Cremades.119 More likely than
not, Stahl’s notes of the meeting provide an accurate account of what occurred.
4. Stollmeyer Gives The Board A Partial Account Of His Meeting With Vista.
At an informal Board dinner in Santa Monica on September 5, 2018, Stollmeyer
advised the Board that he had met with Vista, but he did not give a full report on the
meeting.120 He did not report on his discussion with Qatalyst about a potential sale.121 The
Board instructed Stollmeyer to keep them in the loop, not get “too far advanced” in his
conversations, and to “get smart on the topic” of selling the Company.122 That was also
the day that Centerview provided Stollmeyer with the dossier on Luxor.123
The Board meeting that followed on September 6 was seemingly uneventful. The
minutes reflect that members of management presented on Mindbody’s growth, retention,
and integration performance.124 White covered Q2 highlights, areas of growth, and
118 See JX-277; JX-344. 119 JX-1441 at 10. 120 Trial Tr. at 978:6–981:2 (Cunningham); id. at 1363:4–24 (Goodman). 121 Id. at 972:10–18 (Cunningham); id. at 1360:8–10, 1362:1–4, 1362:1–23 (Goodman). 122 Id. at 1268:8–1269:17, 1364:1–5 (Goodman). 123 JX-265. 124 JX-270.
26 management’s second-half outlook.125 The minutes do not mention Stollmeyer’s meeting
with Saroya and Stahl, nor the invitation to attend the CXO Summit.
A few days later, on September 9, Handler copied Stollmeyer on an email to
Mindbody’s Chief Legal Officer, Kimberly Lytikainen, asking for a meeting to “discuss
the various elements of dealing with the Luxor situation.”126 On September 10, Stollmeyer
asked Centerview to “add an analysis of my voting power if I exercised all of my vested
options as of the end of the year.”127 Centerview provided this information on September
17.128
5. Stollmeyer Attends Vista’s CXO Summit And Is Blown Away.
Vista’s CXO Summit is an annual gathering of senior executives from Vista
portfolio companies and select industry guests. Vista uses the conference to prospect for
acquisition targets.129 Saroya testified that the CXO Summit gives CEOs from potential
targets “a flavor of what it feels like to work for Vista” and helps “take away the myth that
[Vista] might be a slash-and-burn shop.”130
125 Id. at 2. 126 JX-1617 at 2. 127 Id. at 1. 128 Id. 129 JX-264; Stahl Dep. Tr. at 34:9–35:19; see also Stollmeyer Dep Tr. at 286:6–287:18. 130 Trial Tr. at 1123:12–20 (Saroya).
27 Stollmeyer accepted Saroya’s invitation to attend the CXO Summit on October 9.131
At the summit, he met with executives from Vista portfolio companies.132 After the first
day, Stollmeyer texted Saroya to ask for a one-on-one meeting with Vista’s founder Robert
Smith, Vista’s President Brian Sheth, or Vista portfolio company CEO Reggie
Aggarwal.133 Stollmeyer asked Vista to put him in touch with Aggarwal because he wanted
“to know what it’s like to sell to Vista as a founder.”134 Stollmeyer pitched Mindbody to
Robert Smith in a brief meeting on October 9.135
Stollmeyer watched presentations from both Robert Smith and Sheth at the
summit.136 Smith’s presentation included estimated wealth creation for CXOs who took
their companies private with Vista and noted that Vista portfolio company executives had
earned $488.6 million since 2017.137
Stollmeyer texted Saroya that the “[p]resentations are very impressive.”138 He
texted Mindbody’s President Michael Mansbach that the presentations are “mind
blowing/inspiring.”139 Stollmeyer told Mansbach later that day that Vista “really love[s]
131 Id. at 980:13–19 (Cunningham); id. at 1274:6–1274:11, 1364:9–12 (Goodman); id. at 2170:17–2171:1 (Smith). 132 Id. at 389:20–23 (Stollmeyer). 133 JX-327. 134 JX-344; see also Stollmeyer Dep. Tr. at 384:9–385:21. 135 Trial Tr. at 389:20–390:23 (Stollmeyer). 136 Id. 137 JX-343 at 124–25. 138 JX-327. 139 JX-328.
28 me, I love them.”140 Stollmeyer also told Mansbach that the CXO Summit helped him
“center on what is nagging from my subconscious.”141 Stollmeyer sent Mansbach a series
of screenshots, which Stollmeyer described as “money shots,” from a presentation that
Sheth gave.142 Two of the screenshots focused on Vista’s 2016 acquisition of Marketo for
$1.8 billion and subsequent sale of Marketo in 2018 for $4.75 billion.143 At trial,
Stollmeyer admitted that Marketo made an interesting parallel to Mindbody and that
Marketo was “purchased by Vista and then Vista sold them in a fairly short order . . . with
a really strong return.”144 Friedman testified that Stollmeyer later touted to Luxor “that
Vista had bought [Marketo] and then sold it 18 months later for 3x the price.”145 Stollmeyer
would later tell his financial advisor that, after a sale to Vista, “he could make as much
money over the next three years as he did the first go around.”146
Stahl set up a meeting between Stollmeyer and Aggarwhal. In a text to Aggarwal
on October 9, Stahl explained that Stollmeyer wanted “to know what it’s like to sell to
Vista as a founder.”147 Stahl’s text also used the concept of a “home” for Vista, adding
140 Stollmeyer Dep. Tr. at 326:8–328:12. 141 JX-332 at 1, 3. 142 JX-333. 143 JX-334; JX-335; see also Stollmeyer Dep. Tr. at 364:5–366:14. 144 Trial Tr. at 532:13–533:3 (Stollmeyer). 145 Id. at 72:18–74:6 (Friedman). 146 JX-1262. 147 JX-344.
29 that Stollmeyer “is hyper focused on maintaining culture and ensuring his business finds
the right home that will accelerate growth, not cause it to falter.”148
The Board was aware that Stollmeyer was attending the CXO Summit, but
Stollmeyer did not have Board authorization to tell Vista that he was focused on finding a
home for Mindbody.149 Stollmeyer never told the Board that he had done so.150
The CXO Summit changed the way Stollmeyer viewed a sale to a private equity
firm, or at least a sale to Vista. He explained: “what I saw there really shifted my paradigm
a bit on how private equity operates. Classically, you think of private equity firms as
purchasing companies and kind of stripping out the investments to yield maximum cash
flow.”151 Centerview’s Handler agreed that the CXO Summit changed Stollmeyer’s
perception of private equity and that Stollmeyer saw Vista as “his solution.”152 Consistent
with his text to Mansbach, Stollmeyer admitted at trial that he left the CXO Summit with
the impression that Vista really loved him and he loved them.153 Vista felt the same, touting
internally that Stollmeyer “loved” them and that they “built a strong relationship with
[Stollmeyer].”154
148 JX-344. 149 Stollmeyer Dep Tr. at 313:12–18. 150 Lytikainen Dep Tr. at 86:14–20; Liaw Dep. Tr. at 134:10–135:11. 151 Trial Tr. at 393:21–394:16 (Stollmeyer). 152 Id. at 183:5–11 (Handler) (“I would describe it as he had a sea change in terms of his impression of the PE world, and he had gone from really one end of the spectrum to another. You know, hated and despised to beloved. You know, this was his solution.”). 153 Id. at 535:22–536:1 (Stollmeyer). 154 JX-350; JX-372 at 1.
30 After the CXO Summit, Vista began drafting a memorandum about Mindbody for
its Investment Committee, the group tasked with deciding whether to approve or reject an
acquisition.155 The draft recounted Stollmeyer’s attendance at the CXO Summit and noted
that Stollmeyer “mentioned to Nicolas how impressed he had been with Robert [Smith]
and Vista’s vision, reiterating his intention to explore a take-private for Mindbody.”156
Stollmeyer conceded at trial that he did not have authorization to tell Vista in mid-October
2018 that he intended to explore a take-private for Mindbody.157
6. Stollmeyer Works With Qatalyst To Kick Off A Sale Process.
After the CXO Summit, Stollmeyer became laser focused on a sale to Vista. On
October 11, 2018, Chang and Stollmeyer discussed beginning “preparatory work prior to
kicking off a process for Mindbody[.]”158 Stollmeyer asked Chang to provide references
for Vista.159 Chang provided two, one of whom had sold his company to Vista in a deal
where he was represented by Qatalyst.160
In that same email, Chang cautioned Stollmeyer that whenever Vista asked
Mindbody for non-public information, Stollmeyer should confer with Chang “because it is
at that juncture they will use their ability to move quickly to their advantage[]” and “it is
155 JX-1461. 156 Id. at 1. 157 Trial Tr. at 538:18–22 (Stollmeyer). 158 JX-129 at 1; JX-410 at 1. 159 JX-356. 160 JX-410.
31 very important to get the right ‘process’ and messaging from the start to optimize for
value.”161 Stollmeyer later commented that “[t]his advice proved to be prescient and
important.”162
7. Vista Expresses An Interest In Acquiring Mindbody.
On October 15, 2018, Saroya called Stollmeyer, and the two spoke for twenty-five
minutes.163 During the call, Saroya delivered an oral expression of interest to acquire
Mindbody.164 Saroya told Stollmeyer that Vista would pay a substantial premium to
Mindbody’s recent trading price, which closed at $33.27 on October 15.165 Stollmeyer
understood that Vista saw Mindbody’s recent stock correction as a buying opportunity.166
At trial, Stollmeyer testified that he told Saroya that Mindbody was “not for sale” but that
he would relay Vista’s interest to the Board.167 Those statements do not take twenty-five
minutes to say.
8. Vista Initiates Its Internal Process.
Vista is a pro at acquiring companies. As Chang had warned Stollmeyer, Vista’s
advantage is speed. Vista likes to engage “in significant background work” and is “[p]ro-
active in making friendly unsolicited approaches and prefer[s] to kick-off processes vs.
161 JX-410 at 2. 162 Trial Tr. at 545:17–18 (Stollmeyer). 163 PTO ¶ 97. 164 Id. ¶ 98. 165 Trial Tr. at 549:13–550:11 (Stollmeyer). 166 Id. at 549:13–550:11 (Stollmeyer). 167 Id. at 400:5–12 (Stollmeyer).
32 reacting to outreach.”168 Vista then capitalizes on its ability to “move very quickly through
both business and confirmatory diligence” and leverages its early analysis “to truncate
processes and reduce the ability for other potential acquirers to be able to complete
diligence and provide certainty at the finish line[.]”169 The record at trial involved
precedent transactions in which Vista used this strategy, and Vista representatives testified
about the strategy and its competitive advantages.170 In internal communications, Vista
representatives call it “Sprinting,”171 capitalizing the word as if it were defined term.
Vista deployed its go-early-and-fast strategy after the CXO Summit. Stahl texted
Saroya on October 11, “MB down another 6% today. Thoughts on going to IC next week
to get a hunting license?”172 Saroya then texted Stahl on October 14, suggesting, “[l]et’s
get the list of stuff we need from MB ready. I’m going to try and catch [Stollmeyer]
tomorrow and tell him I want to send him the list ASAP and get going.”173 Stahl texted a
fellow Vista deal team member on October 14:
I’ve been back and forth with Monti today and we are likely going to Sprint hard on Mindbody (they have now engaged a banker) and may be trying to sign a deal in the next 2-3 weeks. Would it be possible to upgrade / add to our team to enable us to Sprint?174
168 JX-593 at 46. 169 Id. 170 Trial Tr. at 1151:4–7 (Saroya). 171 See, e.g., JX-378. 172 JX-1457 at 1. 173 Id. 174 JX-378.
33 When presented with these texts at trial, Saroya agreed that Vista was “gearing up and
trying to push hard to get to a signing very fast.”175
Initially, Vista set a goal of signing an agreement before the Company’s next
earning’s call, which was fewer than three weeks away. On October 14, 2018, Stahl texted
Vista deal team member Derek Klomhaus that “Monti wants to announce before their
earnings. What day is that in November? Have Mike add to all of our calendars
(incl[uding] Monti).”176 On October 15, Stahl texted Saroya suggesting that “even if the
earnings call is 10/25, we could still Sprint to sign beforehand.”177 Vista’s goal was to “try
to get ahead of” any competitors in the Company’s sale process.178
Vista also gamed out ways to block other bidders. As early as October 15, Stahl
noted that Vista’s outside counsel was already “thinking through how to reduce interloper
risk / goshop risk.”179 Chang wanted to reach out to other companies before Vista could
act.180
Vista started requesting a market study—a third-party analysis of a particular market
for an acquisition. On October 19, Stahl texted Saroya to ask permission to conduct a
175 Trial Tr. at 1048:18–23 (Saroya). 176 JX-1781. 177 JX-1490 at 29. 178 JX-409. 179 JX-1490 at 29. At trial, Saroya claimed unpersuasively not to know what his text meant. Trial Tr. at 1164:2–10 (Saroya). 180 Trial Tr. at 303:20–304:7 (Chang).
34 market study on Mindbody.181 Saroya texted back “yes” in less than thirty seconds,182 and
Vista retained Bain & Co. to conduct the study.183 A typical market study takes between
two to five weeks to complete, so it was an advantage for Vista to request it before the
Company launched its sale process. The study was expensive—the final price tag for the
four-week analysis was $960,000184—so Vista would not have contracted for it without
some confidence that Mindbody would be running a sale process.185
9. Stollmeyer Tells His Team About Vista’s Interest.
While Vista was revving up its internal process, Stollmeyer began dribbling out
news about the expression of interest. Stollmeyer told his management team first. On
October 17, 2018, Stollmeyer sent an email to Mansbach, White, and Lytikainen with the
heading “Highly Confidential – For Your Eyes and Ears Only. Do not forward or discuss
outside this group without my permission[.]”186 Stollmeyer relayed Vista’s expression of
interest and that Vista “would pay a substantial premium to recent trading range and see
the stock correction an opportunity.”187
Stollmeyer tried to give his team some comfort, stating that he believed that a private
equity sale might be Mindbody’s best option to achieve its long-term vision, but that a sale
181 JX-423. 182 JX-424. 183 JX-681. 184 JX-1644. 185 Trial Tr. at 705:11–15 (Klomhaus). 186 JX-410 at 1. 187 Id.
35 would not be an “automatic ‘exit’” for management.188 Overall, Stollmeyer seemed excited
about a deal with Vista and described the possibility as “lean[ing] into an acquirer who
sees our current capabilities, gets our huge potential, and has the resources to accelerate
our results over the 3 year planning window, and expedite the full realization of what [sic]
our Vision and Purpose.”189
Stollmeyer told the email recipients that he “plan[ned] to socialize this possibility
to the Board [of] Directors individually over the next week” and further said “[p]lease do
not hint or otherwise discuss with them or anyone else until I have a chance to do so and
give you the green light.”190 Stollmeyer acknowledged that the “conversation” with Vista
was “progressing rapidly.”191
Next, Stollmeyer told Liaw of Vista’s expression of interest during an hour-long
conversation on October 18.192 Liaw texted Stollmeyer later that same day, asking him to
“[p]lease keep me posted on the other conversations.”193 Stollmeyer replied that he
appreciated hearing Liaw’s perspective and “our alignment on the key elements.”194
On October 19, before he had spoken with any Board member other than Liaw,
Stollmeyer spoke for thirty-one minutes with Andre Durand, the founder and CEO of a
188 Id. 189 Id. 190 Id. 191 Id. 192 Trial Tr. at 574:21–575:12 (Stollmeyer). 193 JX-1618 at 1. 194 Id. at 2.
36 company that sold to Vista. Durand was one of the two references that Chang had provided
for Qatalyst.
Stollmeyer testified that Durand was incredibly positive about his experience with
Vista on this call.195 Durand reported to Saroya that the conversation turned out to be a
reference call for Vista.”196 Saroya replied, “Yup I was aware[.]”197 Stollmeyer did not
tell the Board about his conversation with Durand.198
10. Stollmeyer Informs The Other Directors Of Vista’s Interest.
Stollmeyer waited until October 23—eight days after Vista’s expression of
interest—to begin contacting the remaining Board members.199 When he spoke with the
directors, Stollmeyer omitted key elements of his discussions with Vista200 and key pieces
of information that he had shared with his management team.
Four of Mindbody’s six outside directors—Cunningham, Goodman, Herman and
Smith—testified at trial. All four admitted that they were unaware of key facts as of
October 23. They agreed that none of them knew about IVP’s desire for a near-term exit.201
To varying degrees, they agreed that they did not know that Vista viewed the downturn in
195 Trial Tr. at 559:1–560:2 (Stollmeyer). 196 JX-421 at 1. 197 JX-422 at 1. 198 Trial Tr. at 560:3–9 (Stollmeyer). 199 JX-1442; Trial Tr. at 574:9–575:5 (Stollmeyer). 200 Herman Dep Tr. at 88:5–89:8; Lytikainen Dep Tr. at 101:3–102:18. 201 Trial Tr. at 920:3–5, 968:13–16 (Cunningham); id. at 1383:24–1384:6 (Goodman); id. at 1492:15–1493:1 (Liaw).
37 Mindbody’s stock price as a buying opportunity or that Vista planned to make an offer
based on a premium over the Company’s trading price, which meant that a further
downturn in the Company’s stock price would result in a lower bid.202 The directors’
testimony also indicates that they did not know that Stollmeyer had already interacted with
Vista on multiple occasions, had spoken with a portfolio company CEO about his
experience selling to Vista, and had told Vista that he planned to step down in two to three
years.
C. The Formal Sale Process Begins.
During a regularly scheduled Board meeting on October 26, 2018, the Board
discussed Vista’s expression of interest and whether to form a transaction committee to
explore a potential acquisition (the “Transaction Committee”).203 This portion of the
meeting occurred in executive session. Stollmeyer remained present, but other members
of management were excused.204
At some point on or before October 26, Stollmeyer asked Liaw to serve as chair of
the Transaction Committee, and Liaw agreed.205 During the meeting, Liaw started acting
202 Id. at 890:21–891:3 (Cunningham) (testifying that he did not know about Vista’s plan to price its offer based on Mindbody’s trading price); Goodman Dep. Tr. at 114:14–19 (testifying that she was not aware that Vista viewed the downturn in Mindbody’s stock as a buying opportunity); Smith Dep. Tr. at 69:8–72:18 (testifying that he did not know that Vista intended to price its offer based on Mindbody’s trading price). Herman claimed not to recall anything about her conversation with Stollmeyer. Herman Dep. Tr. at 88:5–14. 203 PTO ¶ 111; JX-1426 at 180; Trial Tr. at 895:10–896:7 (Cunningham). 204 JX-1426 at 181. 205 Trial Tr. at 576:6–10 (Stollmeyer): id. at 1429:24–1430:4 (Liaw).
38 like the chair, and everyone else went along. The other Board members did not know when
or how Liaw became the presumptive chair of the committee. Goodman testified that
Liaw’s role as chair was just “assumed” at the October 26 board meeting.206 The Board
did not know at that time that IVP was looking to exit and therefore did not discuss whether
IVP’s interest in selling would affect Liaw’s ability to consider strategic alternatives
independently.207
During the meeting, Liaw asked for volunteers to join the Transaction Committee,
warning directors that a sales process can be time-consuming and that they should not
“volunteer lightly.”208 Goodman texted Liaw to volunteer.209 Later that day, Liaw asked
Stollmeyer to “take the lead on conversations to fill out the rest of the committee,” but
Liaw seemed to continue to play a vetting role.210 Cunningham joined the committee after
talking through the commitment with Liaw.211
206 Id. at 1382:19–1383:2 (Goodman); see also id. at 2196:6–12 (Smith) (testifying that he did not know who proposed the membership of the committee or how Liaw was chosen as its chair). 207 Id. at 1383:24–1384:2 (Goodman); id. at 1895:15–1896:2 (Herman). 208 Id. at 895:10–896:7 (Cunningham). 209 PTO ¶ 112. 210 JX-454. 211 Trial Tr. at 895:16–896:7 (Cunningham).
39 The Board created the Transaction Committee by unanimous written consent on
October 30, 2018.212 It comprised Liaw, Goodman, and Cunningham, with Liaw as
chair.213
The Transaction Committee’s initial mandate was to interview financial advisors
and make a recommendation to the Board on whether to engage one or more financial
advisors to assist in reviewing strategic alternatives.214 That was it.
On October 31, the Transaction Committee met with Mindbody’s Chief Legal
Officer and outside counsel who advised the Board on a regular basis.215 Among other
things, the committee members reviewed the initial expectations, their mandate, and set the
date of November 14 to interview potential financial advisors.216 During a closed session
of the meeting that excluded Stollmeyer and other management members, the Committee
discussed
the importance of establishing a process . . . that was independent and free of any influence from members of management or other directors who, depending on the circumstances, could have (or could be viewed to have) a potential conflict with respect to any specific financial advisor or potential strategic partner.217
212 JX-1426 at 182–84. 213 Id. 214 PTO ¶ 114. 215 JX-475. 216 JX-487 at 1; JX-475 at 1. 217 JX-475.
40 Toward that end, the committee requested sample “‘neutrality’ guidelines to serve as a
framework for ensuring that management understood its role in any potential process.”218
With the assistance of outside counsel, the Transaction Committee prepared
“guidelines for communications, potential conflicts and disclosure matters” (the
“Guidelines”).219 The Guidelines required management to obtain “authorization for
outbound communications to potential strategic parties or financial advisors, timely
reporting of indications of interest or strategic inquiries to the board or Strategic
Transaction Committee and flagging any potential conflicts.”220
The Transaction Committee adopted the Guidelines during the October 31 meeting,
and Lytikainen emailed the Guidelines to the Board on November 2.221 Stollmeyer
received and reviewed the Guidelines.222
D. The Company Lowers Guidance.
During late October and early November, the Company was preparing to release Q4
guidance. Investors watched the Company’s guidance closely, and the stock price had a
history of reacting to it.
218 Id. at 2. 219 JX-487 at 1; JX-475 at 1. 220 JX-487 at 3–4. 221 Id.; Trial Tr. at 898:20–899:9 (Cunningham) (“The point of the guidelines was to make sure that they weren’t disclosing price, talking about structure, talking about their employment, very strategic, needy things[.]”); id. at 1587:3–10 (Lytikainen) (similar); id. at 2201:22–2202:8 (Smith) (similar). 222 Stollmeyer Dep. Tr. at 651:10–18.
41 Mindbody had been struggling to hit its publicly disclosed targets throughout 2018.
In the first half of 2018, Mindbody revised its 2018 full-year guidance to well below Street
expectations.223 And at the end of Q2 2018, Mindbody reduced the midpoint of its full-
year revenue guidance by approximately $1 million.224 During the second half of 2018,
Mindbody continued to miss targets.225 Its Q3 revenue ($63.8 million) missed the midpoint
of Mindbody’s already-reduced Q3 revenue guidance ($64 million).226 By September
2018, Mindbody’s internal Q4 revenue forecast stood at $69.40 million, down from May’s
$72 million forecast.227
By October 2018, Mindbody’s Q4 revenue forecast had slipped to approximately
$68 million.228 On October 26, White provided the Audit Committee a “first pass,
preliminary view of Q4’18 guidance” of $65–$67 million against a forecast of $67.8
million.229 On November 2, Mindbody’s head of financial planning and analysis
(“FP&A”), Craig Heinle, advised that his best estimate had risen to $67.8–$68.2 million.230
Stollmeyer felt that because of the Company’s prior difficulties meeting estimates,
the Board and the FP&A team “had now swung the pendulum to being overly
223 JX-179 at 7; Trial Tr. at 1432:6–1433:16 (Liaw); id. at 2037:2–22 (White). 224 JX-210 at 8; see also Trial Tr. at 1433:20–1434:15 (Liaw). 225 Trial Tr. at 411:5–15 (Stollmeyer). 226 JX-414 at 29. 227 JX-1860 at 9; JX-1861 at 12. 228 JX-1433; JX-503 at 2. 229 JX-456. 230 JX-496; Heinle Dep. Tr. at 123:12–124:12.
42 conservative.”231 Stollmeyer wanted to “guide to the closest thing we could to our
reality.”232 On November 5, Stollmeyer emailed Gold and members of the Mindbody
management team that he had “never played a game of lowered expectations” and that “[i]f
I change my tune now, that would be inauthentic and disheartening. It would also sound
weird to those who know me.”233 On the morning of November 5, after digging into the
forecast, Stollmeyer suggested guiding to $67–69 million.234 That evening, however,
Stollmeyer and White presented a revised forecast of $68.1 million and a revised proposed
guidance range of $66–68 million, for which “the mid point would give us $1.1M in
cushion.”235
The revised guidance range of $66–68 million was conservative. The $1.1 million
cushion between the forecast and the midpoint of the guidance was more than the previous
quarter,236 even though management was unusually confident because the October flash
report was “basically spot-on.”237 There was only $305,000 of risk in the forecast, meaning
that management did not foresee a scenario in which revenue would fall below $67.5
231 Trial Tr. at 414:23–415:12 (Stollmeyer). 232 Stollmeyer Dep. Tr. at 542:7–543:10. 233 JX-510. 234 JX-507; Trial Tr. at 415:13–24, 584:5–10 (Stollmeyer); id. at 2044:22–2045:1 (White). 235 JX-531; JX-508 at 2. 236 JX-206 at 28. 237 Heinle Dep. Tr. at 95:9–14, 120:24–121:7.
43 million.238 Adjusted for high, medium, and low probability risks and opportunities, the
forecast was greater than $68 million across the board.239
The Audit Committee convened by phone the evening of November 5. Audit
Committee members Liaw and Herman were present, along with Stollmeyer and White.240
Committee chair Smith had signed off on guiding $66–68 million before the meeting.241
Liaw favored lower guidance because “the only way to rebuild [credibility] or start to
rebuild that is to show that [Mindbody] can hit, and ideally beat, future guidance.”242
Herman agreed that guidance should position Mindbody to “beat and raise.” 243 They
recommended guidance of $65–67 million.244
Stollmeyer and Liaw spoke immediately after the Audit Committee meeting for
sixteen minutes.245
Three minutes after hanging up with Liaw, Stollmeyer texted White that he was
“adding a new second paragraph in [his] script noting our challenges.”246 Later that night,
238 JX-508 at 1. 239 Id. 240 JX-531. 241 JX-506; JX-531; Smith Dep. Tr. at 193:11–194:17. 242 Trial Tr. at 1440:21–1441:13 (Liaw). 243 Id. at 1980:23–1981:16 (Herman); see also id. at 1314:20–1315:8 (Goodman) (describing “beat and raise” as a “perfect kind of managing-the-street scenario”); id. at 2172:21–2173:15 (Smith). 244 Id. at 1439:13–23 (Liaw); id. at 1900:23–1901:14 (Herman); id. at 2048:6–8 (White). 245 JX-1442; Trial Tr. at 1528:3–1530:11 (Liaw). 246 JX-504; see also Trial Tr. at 598:16–599:4 (Stollmeyer) (acknowledging that he made the script more negative after speaking with Liaw).
44 Stollmeyer circulated the revised script to his management team.247 He deleted the portion
of his script that noted Mindbody’s substantial progress integrating Booker.248 He pulled
other “good stuff” from his script, deciding to “save [it] for future use.”249
Stollmeyer led the November 6 earnings call during which Mindbody announced its
Q3 revenue miss and issued Q4 guidance of $65–67 million.250 He threw “Booker under
the bus”251 and referred to management’s failed execution, noting that “we’ve been
humbled by the last couple of quarters in dealing with the magnitude of integrating these
businesses and ramping up growth at the same time.”252 Centerview employees observed
in real time that Stollmeyer “sounded too apologetic [and] strange.”253 Friedman recalled
Stollmeyer sounding “depressed” and listened to the call “in shock.”254
After the earnings call, Mindbody stock fell 20%—from a November 6 close of
$32.63 per share to a November 7 close of $26.18 per share.255 The stock fell so far that
Stollmeyer suggested to Liaw that Mindbody buy back shares.256
247 JX-523. 248 Compare JX-1434 with JX-523 at 3. 249 JX-523 at 1. 250 Id. at 3, 9. 251 JX-397 252 JX-527 at 10. 253 JX-516. 254 Trial Tr. at 41:24–42:6 (Friedman). 255 JX-130 at 3. 256 JX-1626.
45 Plaintiffs argue that Stollmeyer lowered guidance to depress Mindbody’s stock
price and make a deal seem more attractive. Certainly, Stollmeyer knew the guidance
could affect the stock price. He told White and Mansbach a few days earlier that “a few
hundred thousand of Q4 revenue makes a huge difference [on] Tuesday,”257 and he testified
that guiding $1 million higher would have affected Mindbody’s stock price.258 When asked
at trial whether he was considering how guidance could impact the sales process,
Stollmeyer acknowledged that, “a low guide, I certainly knew, was going to be a really
unfortunate message to send to potential acquirers as we were talking to them and trying
to rev up their excitement about our company.”259
Liaw also knew that lowered guidance would make a sale more attractive. He and
a colleague discussed that “the PE guys will drag it out if they think we will miss
numbers.”260 Liaw later suggested to Goodman that lowering Q4 guidance would facilitate
a sale, explaining that “if we are missing [guidance] they will slow roll us. Hence good to
guide down as far as we did.”261 During his deposition, Liaw claimed that his
recommendation to lower Q4 guidance was not in any way based on the prospective sale
process.262 He withdrew this statement at trial and admitted that the sale process was not
257 JX-495 at 1. 258 Trial Tr. at 579:2–13, 597:23–598:13 (Stollmeyer). 259 Id. at 589:6–21 (Stollmeyer). 260 JX-101 at 6. 261 Id. at 14. 262 Liaw Dep. Tr. at 398:18–399:13.
46 “completely absent from my mind.”263 He testified, however, that his “primary focus”
when the Company lowered guidance “was figuring out how the company could start to
rebuild credibility.”264
In the end, the facts surrounding the Q4 guidance are murky. They reflect both a
desire to establish a figure that the Company could hit and a recognition of the effect that
low guidance would have for the attractiveness of a sale.265
E. Qatalyst Tips Vista About Stollmeyer’s Target Price.
The drop in Mindbody’s stock price after the November 6 earnings call caught
Vista’s attention.266 Vista equated a lower stock price with a lower deal price,267 leading to
a greater profit in a future exit. Vista had recognized huge gains on software companies by
263 Trial Tr. at 1483:5–1484:13, 1442:16–24 (Liaw). 264 Id. at 1442:16–24 (Liaw). 265 In a side debate, Defendants argued that the Audit Committee gave Stollmeyer “direction” and a “directive” on where to guide. See Dkt. 447 (“Defs.’ Pre-Trial Br.”) at 11, 13). But the Audit Committee members uniformly testified that the decision was up to management. Trial Tr. at 1952:16–1953:13 (Herman); id. at 2217:14–20 (Smith); id. at 1528:13–17 (Liaw). Herman went so far as to describe Defendants’ word choice (“directive”) as “unfortunate.” Id. at 1954:8–21 (Herman). Defendants’ counterfactual narrative on this point was unnecessary. In the end, Stollmeyer understood that it was his decision where to guide. See JX-499 at 3–4. He took Liaw’s advice, but Plaintiffs failed to prove that Liaw’s advice or Stollmeyer’s decision on this issue emanated from a malicious intent to cater to an acquirer. 266 JX-533 (“MB down 16% after earnings. Should we sprint?”); JX-557 (“You see mb earnings? Tanked”); JX-558 (“Absolutely demolished”). 267 Trial Tr. at 698:21–24, 701:24–702:5 (Klomhaus); id. at 1564:11–1566:7 (Sheth).
47 purchasing them when they experienced stock price “dislocation,” then selling on the
“rebound.”268
On the evening of November 6, Stahl texted Saroya about Mindbody’s stock drop:
“MB down 16% after earnings.”269 Stahl asked, “Should we sprint?”270 He also asked if
Saroya had heard anything from Chang.271 Saroya called Chang and spoke for five
minutes.272
After the call, Saroya texted Stahl that “Jeff [Chang is] all over it” and that “[h]e
wants 40 min.”273 Saroya then inquired about the implications of a $40 per share price for
Vista’s financial model, which Stahl had just reported was “in good shape,” and Stahl
responded that Vista “can lean in to get there,” and that it would be easier to do so if Vista
assumed a “7x+ exit multiple” rather than the “6x forward” they were currently running.274
In other words, Stahl explained to Saroya how to make it work under the model to pay $40
per share for Mindbody.
The statement that “he wants 40 min” received a great deal of attention at trial. The
clear implication of this text is that the pronoun (“he”) referred to Stollmeyer, and that
268 JX-1465 at 30. 269 JX-533. 270 Id. 271 Id. 272 JX-1452. 273 JX-533 (emphasis added). Id. On October 11, Saroya had texted Stahl that he “would pay 6-7x forward” for 274
Mindbody. JX-365 at 12.
48 Chang tipped Vista that Stollmeyer wanted a deal price of at least $40 per share. Other
contemporaneous evidence shows that Stollmeyer wanted a deal price of at least $40 per
share. Stollmeyer had implied it in mid-October when he described the expression of
interest to his management team and wrote that Vista was willing to pay a “substantial
premium” over Mindbody’s stock price after it closed at $33.27 per share.275 Chang said
it in mid-November, writing internally that “Rick’s bogey is $2bn,” 276 which equates to
$40 per share.277 Liaw said it in mid-December, telling Goodman and Cunningham that he
was “modestly concerned that Rick still seems focused on a 4-handle by year end.”278 That
is deal talk for at least $40 per share.279
Chang’s pricing tip to Vista was a bad fact for Defendants. Unable to deny that the
text was sent, Defendants attempted to explain it away, suggesting that the “40 min” text
was sent accidentally and that Chang had meant to communicate to someone else at Vista
(not Stahl) about a different transaction (Apptio). There is no support for that in the record.
Both Saroya and Chang had zero recollection of what they discussed on the phone that
day.280 Unfortunately, there is little other contemporaneous evidence on this issue, because
before this litigation arose, Saroya lost his phone and was unable to recover any text
275 JX-410 at 1; JX-130 at 3. 276 JX-589. 277 Mindbody had 48,016,533 shares outstanding at that time, JX-1138 at 16, which means that a $2 billion deal price would translate into $41.65/share. 278 JX-750 (emphasis added). 279 Trial Tr. at 915:21–916:3 (Cunningham). 280 Id. at 1195:20–1196:7 (Saroya); id. at 288:4–9 (Chang).
49 messages from the entire year of 2018,281 and Chang had deleted potentially responsive
texts from 2018 through 2019.282
The record on this issue is limited to Stahl’s text with Saroya. The text is clear. The
text references a “40 min,” which was Stollmeyer’s minimum. The text prior to the “40
min” was about Mindbody. The text after the “40 min” was about Mindbody. And Vista
called Chang in between to discuss Mindbody. All indicators are that the communication
was not about Apptio at all. It was about Mindbody.
F. Stollmeyer Tips Vista About The Formal Sale Process.
The Guidelines required management to obtain authorization “for outbound
communications to potential strategic parties,”283 but Stollmeyer ignored them. On
November 10, he texted Saroya asking to speak.284 They talked by phone later that day.285
During his deposition, Stollmeyer testified that he informed Saroya during this call
that Mindbody would be running a sales process: “Q. So it’s your testimony today that on
November 10th you notified Mr. Saroya of the process? A. Yes, I believe so.”286
Stollmeyer repeated that admission later in his deposition. When asked, “So it’s fair to say
281 Id. at 1105:11–1106:17 (Saroya). 282 Id. at 246:14–247:7 (Chang). 283 JX-489 at 2. 284 JX-573. 285 JX-1442. 286 Stollmeyer Dep. Tr. at 626:12–23.
50 that as of November the 10th, your testimony is that you told Mr. Saroya, hey, we’re going
to be doing a process. Right?” Stollmeyer replied: “I believe I did.”287
Stollmeyer’s tip was yet another bad fact for Defendants. At trial, Stollmeyer tried
to recant. When confronted with his deposition testimony, he stated that he had “done a
lot of thinking about it,” that he had been deposed for “12 to 14 hours” by the time he was
asked this line of questioning and, “[a]t that point” he was “confused about dates.” 288 He
continued: “I’m not sure that I ever told Monti we’re having a process.”289 The deposition
testimony at issue, however, occurred during the morning of the second day of his
deposition, not at the end of a long day. Stollmeyer could have corrected his testimony by
errata sheet, but he did not do so. Circumstantial evidence makes it likely that Stollmeyer
did exactly what he described in his deposition. Plaintiffs proved that Stollmeyer tipped
Vista to the sales process on November 10.
There was at least one other instance in which Stollmeyer violated the Guidelines
by contacting Vista. On November 17, Saroya texted Stollmeyer about an invitation to a
charity event in Miami.290 Stollmeyer replied, despite the prohibition in the Guidelines on
outbound communications to potential acquirers, saying that it would be “worth the trip”
and asking if he could bring his wife.291 Stollmeyer then asked Chang if he should attend,
287 Id. at 627:13–18. 288 Trial Tr. at 622:9–623:3 (Stollmeyer). 289 Id. at 622:9–623:3 (Stollmeyer). 290 JX-1490 at 43. 291 Id. at 44.
51 and Chang said no.292 That was the right answer, but Chang did not give that advice
because the Guidelines plainly barred the contact. Rather, Chang texted Stollmeyer, “The
more they think or feel you’re in their camp, the less $ they’ll pay.”293 Stollmeyer was
undaunted: “On the other hand, I [c]an show a little leg and get them frothing at the mouth
to get me and MB in the portfolio [.]”294 Although Stollmeyer eventually declined the
invitation, the communications speak volumes as to Stollmeyer’s mindset at the time.295
G. Mindbody Retains Qatalyst As Its Financial Advisor.
On November 14, 2018, the Transaction Committee convened to decide on hiring
an investment banker.296 Vista conveyed its expression of interest on October 15. It was
now one month later, and Mindbody still had not retained a financial advisor. Both
Centerview and Qatalyst had provided advisory services to Mindbody in the past, and both
were invited to pitch for the business.297
Centerview’s presentation emphasized its experience on deals in the technology
sphere, where Mindbody operated.298 Picking up on Stollmeyer’s request for a dossier on
Luxor, Centerview also cited its experience in mergers that faced activist challenges.299
292 JX-617. 293 Id. 294 JX-552. 295 Trial Tr. at 564:5–17 (Stollmeyer). 296 JX-607. 297 PTO ¶ 118. 298 JX-595 at 12. 299 Id. at 14.
52 Centerview depicted Mindbody as a company facing near-term challenges but with
excellent long-term prospects. The near-term challenges included “Recent Execution
Issues”300 and the recent downturn in SaaS company valuations.301 The presentation also
showed the extent to which the downward changes in Mindbody’s guidance negatively
impacted the Company’s stock price.302 According to Centerview, this “Recent Noise”
masked Mindbody’s “Strong Healthy Underlying Business.”303 Centerview’s calculations
of Mindbody’s earning potential “Impl[ied] a Significant Value Dislocation in the
Market.”304 Handler agreed that these materials showed how Mindbody’s depressed
valuation correlated with its Q4 guidance.305
Turning to the sale process, Centerview explained how its approach would achieve
the goal of “Keeping MINDBODY’s Special Committee in Control of the Process.”306
Centerview’s proposed timeline contemplated an initial phase during which Centerview
and management would develop a baseline valuation. After that, Centerview would
contact potential acquirers. Interested bidders would respond. If the Committee decided
to pursue an offer, then the process would move toward closing.307 According to
300 Id. at 22. 301 Id. at 24. 302 Id. at 25 (“Small Revenue Re-sets – Large Stock Impact”). 303 Id. at 27. 304 Id. at 28; Handler Dep. Tr. at 287:15–25. 305 Handler Dep. Tr. at 291:21–292:8. 306 JX-595 at 40. 307 Id. at 56.
53 Centerview’s presentation, the process could take somewhere between 60–190 days.308
Lytikainen’s notes suggest that Centerview saw no need for a near-term transaction and
that for purposes of a sale, the “time frame is two years.”309 That comment reflected the
reality that Mindbody’s prospects would improve as the Company worked through its near-
term challenges.
Qatalyst’s pitch emphasized its experience on deals with Vista.310 One of the slides
showed potential transaction prices and highlighted $38.50 per share as corresponding to
the revenue multiple Vista had paid in its Apptio acquisition.311 Qatalyst also described
Vista’s ability to “move very quickly through both business and confirmatory diligence”
and “to truncate processes and reduce the ability for other potential acquirers to be able to
complete diligence and provide certainty at the finish line[.]”312 Qatalyst envisioned a
much quicker sale process and contemplated a closing as early as December 31 “if a party
provides a pre-emptive bid that the Board finds compelling and other parties indicate lower
ranges of value.”313 That comment described Vista’s preferred strategy.
After the presentations from Centerview and Qatalyst, the Transaction Committee
authorized the Company to engage Qatalyst.314
308 Id. 309 JX-607 at 2. 310 JX-593. 311 Id. at 30. 312 Id. at 46. 313 Id. at 42. 314 JX-600 at 2.
54 At trial, the directors lauded Qatalyst’s experience with technology companies as
the basis for their choice.315 That testimony was credible, but there is also evidence that
Liaw—who knew of Stollmeyer’s interactions with Vista—pushed to retain Qatalyst. The
strongest proof of this fact is found in an email that Liaw sent to himself. When preparing
to negotiate Qatalyst’s fee, Liaw emailed himself a set of talking points that included “I
lobbed this up for you guys to dunk it”; “You know I went to bat for you”; and “Everyone
knows this a high probability outcome just based on the inbound interest and overall set
up[.]”316 At trial, Liaw tried to minimize the significance of these comments as containing
“a degree of embellishment for the purpose of negotiating a lower fee for Mindbody,” and
that testimony was credible. Even discounting the statements for embellishment, it is
undeniable that Liaw had advocated to retain the adviser who emphasized its relationship
with Vista and recommended a quick sale process.
H. Qatalyst Contacts Potential Buyers.
With Qatalyst’s help, Mindbody identified fourteen potential buyers, including both
financial sponsors and strategic acquirors.317 Stollmeyer rejected one candidate because
he didn’t “want to work for a payments company.”318
315 Trial Tr. at 1903:2–19 (Herman); id. at 1316:19–1317:1 (Goodman); id. at 2029:6–13 (White). 316 JX-614; see also Trial Tr. at 1486:23–1491:10 (Liaw). 317 JX-623 at 1. 318 JX-670; JX-671 (“Qatalyst had them on the list, and we pulled them from early outreach.”).
55 Qatalyst planned to approach the strategic bidders beginning on November 19 and
the financial sponsors beginning on November 30.319 Qatalyst wanted to contact the
strategic bidders first because they often moved slower than the financial sponsors.320
Under that schedule, Vista was not supposed to know that Mindbody had started a
sale process until November 30 at the earliest. But Vista already knew and was ready to
sprint. Vista had provided its expression of interest on October 15. Stollmeyer had tipped
Vista about the process on November 10. There is even evidence that Vista gained
additional insight into the schedule, because on November 27, Stahl texted a colleague that
“Monti and I are going to be sprinting at Mindbody starting next week.”321
Chang formally contacted Vista on November 30.322 Chang did not contact the other
financial sponsors until December 3 and 4.323
Interested buyers attended management presentations from Stollmeyer and his
executive team. They met with H&F on the morning of December 11.324 He texted his
wife that the meeting “went really well. Like those guys.”325 Later that day, the team met
319 JX-1138 at 36. See JX-625 at 1 (“As you know, sponsors will be phased in later.”); see also Trial Tr. at 320
910:6–20 (Cunningham) (“[I]n my experience, this is a common thing to do.”). 321 JX-652. 322 JX-960. 323 Id. 324 JX-730. 325 Id.
56 with Vista.326 Stollmeyer joined Sheth and Saroya for drinks afterward and texted Chang:
“Am with Brian and Monti at Battery. Going great!”327 Stollmeyer treated the two firms
differently.
I. Vista’s Investment Committee Approves A Range.
On December 12, Saroya texted his team that Sheth wanted to convene Vista’s
Investment Committee on “Friday [December 14] and move fast on [Mindbody].”328 Vista
received Bain’s final market study on December 13, 2018,329 two days before other
financial sponsors gained access to Mindbody’s data room. Klomhaus testified that the
Bain study gave Vista “more conviction that we knew more about the market than we
otherwise would have.”330 Another Vista deal team member later wrote, “[w]e were able
to conduct all of our outside-in work before the process launched allowing us to gain
conviction early that this is a must own business.”331
At trial, Defendants stressed that when the Investment Committee met, Vista still
believed that it faced competition for Mindbody. That was true. Saroya messaged his team
on December 13 instructing them to “[s]olve for approval up to 39. We are going to have
a lot of competition on this one[.]”332 After learning that Vista’s estimated internal rate of
326 Id.; JX-960. 327 JX-727. 328 JX-744. 329 JX-755; JX-756. 330 Trial Tr. at 711:21–712:2 (Klomhaus). 331 JX-968. 332 JX-763 at 1.
57 return at $39 per share would be the same as the Apptio transaction, Saroya instructed his
team: “I think we show 35 but ask for approval up to 40.” 333 Vista wanted the ability to
compete if it ended up facing competition, but Vista also hoped that by sprinting, it could
eliminate the competition.
The drafting of the Investment Committee materials corroborate that Vista knew in
advance about the sale process. An early draft of the slide deck stated that Qatalyst had
informed Vista of Mindbody’s sale process in “Late October 2018.”334 That was true, and
it revealed the informational advantage that Vista received. In the final presentation, the
date was adjusted to November 30, which was the official date when Qatalyst was
authorized to contact financial sponsors.335 In between drafts, Stahl sent a text to the drafter
of the deck saying “dont tell them about process.”336
The deal team made similar changes to the summary memorandum distributed to
the Investment Committee along with the presentation. An early draft contained a lengthy
description of Vista’s interactions with Stollmeyer:
In August of 2018, Monti met with Rick and introduced him to Nicolas Stahl. The three of them had lunch in San Luis Obispo, where the Company is currently headquartered. Rick mentioned that he would like to find a good home for his Company and expects to stay as the CEO for 2-3 more years, citing two qualified internal candidates who would make good successors. In October at the CXO conference in San Diego, Rick mentioned to Nicolas how impressed he has been with
333 Id. at 8. 334 JX-739 at 6. 335 JX-781 at 7. 336 JX-758.
58 Robert and Vista’s vision, reiterating his intention to explore a take-private for Mindbody. Shortly after the conclusion of CXO, Rick reached out to Jeff Chang at Qatalyst Partners in order to begin preparatory work prior to kicking off a process for Mindbody after the Company’s Q3 2018 Earnings Call on November 6th.337
The final version omitted that paragraph and stated only that Saroya and Stahl met with
Stollmeyer on August 23 and that Stollmeyer attended the CXO Summit.338 The final draft
omitted Stollmeyer’s other interactions with Vista and stated incorrectly that Vista first
learned of a potential sale process on November 30.339
On December 14, Vista’s Investment Committee authorized a formal bid for
Mindbody.340 No minutes or other record evidence reflects the discussion or the decision.
Stahl testified that he did not recall what was said at the meeting.341 When asked at trial
whether the Investment Committee approved a range, Saroya testified that the Investment
Committee approved a “cap of $35.”342
Saroya’s testimony about a cap conflicted with his instructions to his team to prepare
documents to obtain approval for a range of over $35 and “ask for approval up to 40.”343
337 JX-1461 at 1 (emphasis added). 338 JX-1462 at 1. 339 Id. 340 Trial Tr. at 824:13–19 (Stahl). 341 Id. at 824:24–825:2 (Stahl). 342 Id. at 1078:1–9 (Saroya). 343 JX-763 at 1, 8 (emphasis added).
59 It is also inconsistent with a slide showing purchase prices at increasing revenue multiples
up to $40/share.344
Saroya’s testimony conflicted with the testimony of Sheth, Vista’s President. Sheth
explained that the Investment Committee’s practice was to provide a range, not a cap, and
that they followed that practice for Mindbody.345 When presented with Sheth’s testimony
at trial, Saroya deferred to Sheth’s recollection.346
Saroya’s testimony conflicted with how Vista acted. Vista started the bidding at
$35 per share, which would be strange if that was a cap. Saroya testified that increasing a
price beyond what the Investment Committee had authorized required an additional round
of approval from the Investment Committee.347 Vista increased its bid, and Saroya had no
recollection of getting an additional approval to go beyond the cap.348
Saroya’s testimony is inconsistent with his deal team’s internal communications.
Vista employees took bets on what price Vista would pay to acquire Mindbody. This came
out in trial through a text from Stahl to Saroya, which attached a photo that Stahl called
“[t]he line.”349 The image had a line set at $37.50—halfway between $35 and $40.350 Vista
344 JX-781 at 11. 345 Trial Tr. at 1570:23–1571:23 (Sheth). 346 Id. at 1225: 2–5 (Saroya). 347 Id. at 1078:10–13, 1222:8–1123:4 (Saroya). 348 Id. at 1226:1–6 (Saroya). 349 JX-883 at 1–2. 350 Id. at 2.
60 employees submitted their over-under guesses of the eventual deal price.351 The lowest
prediction was $36.50, and the highest prediction was $40.352 Over half of the participating
employees guessed that the price would be greater than $37.50.353 The highest prediction
by a deal team member was $38.50/share.354 In response to this image, Saroya said, “37.5
is a good guess[.]”355 Stahl replied, “I thought so too.”356
In light of this evidence, Saroya’s testimony about a cap at $35 per share was not
credible. The Investment Committee approved a bidding range that went up to $40 per
share.
J. Mindbody Grants Data Room Access To Potential Acquirers.
Ultimately, seven parties signed non-disclosure agreements and gained access to
Mindbody’s data room.357 The data room opened on December 15.358 All parties received
the same documents, which were designed to provide what a generic private equity fund
would want to have for its “first-level diligence.”359 Parties began dropping out after
receiving data room access.360
351 Id. 352 Id. 353 Id. 354 Trial Tr. at 835:11–24 (Stahl). 355 JX-883 at 3. 356 Id. at 5. 357 JX-787 at 1. 358 Id. 359 JX-1221; Trial Tr. at 307:15–308:2 (Chang); id. at 2050:13–21 (White). 360 JX-886 at 3.
61 Vista moved forward. Stahl testified at trial that Vista’s outlook on Mindbody’s
value initially soured after gaining access to the data room,361 because “there was less near-
term growth than what we have previously anticipated.”362 Stahl testified that Vista also
had concerns about Mindbody’s customer retention, its ability to upsell products to
customers, declining organic revenue, and competitive threats.363 The contemporaneous
evidence shows that like Mindbody management, Vista viewed those issues as near-term
hurdles that the Company could overcome. After processing the information from the data
room, Saroya texted Sheth that “our key finding is that if we fix the go to market engine
we can accelerate growth meaningfully” and that “we will be lined up to preempt after you
and I discuss.”364 Saroya minimized the near-term challenges that the Company faced,
stating, “[w]e see the same issues in most of these businesses.”365
Vista became more excited after meeting with Mindbody’s sales team.366 Stahl
texted Saroya that “the sale strategy was terrible and they have started fixing a lot of
things.”367 Stahl believed that Vista could achieve significant long-term gains after buying
Mindbody.368
361 Trial Tr. at 748:11–754:21 (Stahl). 362 Id. at 748:17–749:5 (Stahl). 363 Id. at 748:2–749:8 (Stahl). 364 JX-820 at 1. 365 Id. at 3. 366 JX-852. 367 JX-855. 368 Trial Tr. at 748:17–749:5 (Stahl).
62 K. Vista Makes A Formal Offer.
On December 18, 2018, three days after the data room opened, Vista submitted an
offer to acquire the Company for $35 per share.369 Vista imposed a 24-hour deadline for
acceptance. After that, the offer would expire. Vista conditioned its offer on Stollmeyer
and IVP entering into a voting and support agreement.370
That same day, Stahl sent Saroya the photo of the bidding line at $37.50, and Vista
employees began betting on the final price.371 In his deposition, Stahl testified that the
guesses were just a “game” that “wasn’t based on anything.”372 At trial, Saroya claimed to
not recall what the “line” was even about.373 Saroya’s other texts give him away. Referring
to a bet of $40 per share by an employee named Luke, he wrote, “Luke has no faith in me
huh.”374
The Transaction Committee convened on December 19, 2018, to discuss Vista’s
offer of $35 per share.375 Later that day, the Transaction Committee directed Qatalyst to
communicate to all potential bidders that there was pressing need for them to submit
prompt indications of interest.376 The remaining potential bidders were much further
369 JX-825. 370 Id. at 1. 371 JX-883 at 2. 372 Stahl Dep. Tr. at 112:23–113:22. 373 Trial Tr. at 1227:9–16 (Saroya). 374 JX-883 at 4. 375 JX-1729. 376 JX-1138 at 39.
63 behind in their diligence than Vista. One Qatalyst employee emailed Chang on December
19 to note that one bidder, Thoma Bravo, was not as far in their process: “They are just
much further behind in their thinking. . . . Level of questions is much more basic so far.”377
Thoma Bravo dropped out of the process on December 20.378 Evidencing that Vista
continued to have privileged access to what was happening in the deal process, Vista had
expected to learn after 3:00 p.m. Pacific Time that day whether Thoma Bravo had
submitted a bid.379
Another bidder, Recruit, was also still early in diligence.380 Recruit’s impression
from the management presentation was that Stollmeyer seemed “checked out.”381
Stollmeyer told Centerview that he was uncomfortable with Recruit because he did not
want to work with a Japanese company, as they required a translator.382
By December 20, only Vista and one other bidder, H&F, remained.383 Qatalyst had
initiated follow-up calls with H&F on Mindbody’s go-to-market and financial
performance, but H&F had not submitted an offer.384
377 JX-876 at 1. 378 JX-895. 379 JX-902; JX-903. 380 JX-877. 381 JX-1605. 382 Trial Tr. at 72:18–74:6 (Friedman). 383 JX-886 at 3. 384 JX-885 at 5.
64 L. Mindbody Counters And Vista Makes A “Best And Final Offer.”
Mindbody’s Board convened on December 20 to discuss Vista’s initial offer with
Qatalyst.385 During the meeting, the Board authorized Qatalyst to make a counteroffer of
$40 per share.386 Qatalyst had recommended that figure,387 which matched both the top of
Vista’s range and the number that Stollmeyer had said he wanted.
After receiving the counter, Saroya circulated a slide within Vista that identified
potential synergies with other Vista portfolio companies.388 He wrote that “[o]ur team
believes these synergies allow us to move up on our initial bid.”389 At trial, Saroya claimed
that the model presented to the Investment Committee only supported a maximum price
between $36 and $37 per share and that he did not recall any discussion about a higher
range.390 The evidence shows that the Investment Committee had already given Saroya
authority to go above $35 per share.
On December 20, Vista bumped to $36.50 per share. Vista described its bid as its
“best and final” offer, but the evidence shows that Vista could and would gone higher if it
had been pressured to do so. Qatalyst first contacted Stollmeyer to communicate the
385 JX-885. 386 Id. at 2. 387 JX-884 at 2. 388 JX-914. 389 Id. at 1. 390 Trial Tr. at 1090:5–16 (Saroya).
65 offer.391 Stollmeyer then texted Liaw that Vista had given their “best and final” offer of
$36.50.392 Liaw responded, “I’m kind of disappointed actually . . . .”393
Qatalyst reached out to H&F on December 21.394 H&F responded that they were
“processing” and would need “2 more weeks to sign” up a transaction.395 On price, H&F
told Qatalyst that they had “no path to $40.”396
At this point, the Transaction Committee seemed to discontinue meeting, and the
full Board convened to discuss Vista’s $36.50 per share bid on December 21. 397 Without
other bidders, the Board had to decide whether or not to take Vista’s bid of $36.50. On
December 21, Liaw told his partners that he “personally thought Vista would get up to
$38,” but that the market volatility and lack of other interested buyers made [$36.50] the
most attractive offer.398 Goodman thought $36.50 per share was “an excellent price that
would derisk the future for our shareholders.”399 Smith thought that the premium “was
definitely worth accepting versus the uncertainty of potentially several years of uncertain
execution.”400
391 Id. at 455:14–23 (Stollmeyer). 392 JX-890; JX-891. 393 JX-892. 394 JX-906 at 1–2. 395 JX-951. 396 Id. 397 JX-906. 398 JX-904. 399 Trial Tr. at 1347:19–1348:3 (Goodman). 400 Id. at 2188:21–2189:17 (Smith).
66 The deal price of $36.50 per share represented a premium of approximately 68%
over the closing price of Mindbody’s Class A common stock on December 21.401 Qatalyst
said it could render a fairness opinion for the $36.50 per share offer.402 On December 21,
the Board directed management to accept the bid and negotiate a merger agreement.403
M. The Parties Sign The Merger Agreement.
On December 23, 2018, the Board approved the Agreement and Plan of Merger (the
“Merger Agreement”), and the parties signed it.404 If the Merger closed, then each share
of Mindbody common stock would be converted into the right to receive $36.50 per share
in cash, subject to the stockholder’s right to eschew the merger consideration and seek
appraisal.405 Stollmeyer and IVP agreed vote shares carrying 32.1% of Mindbody’s
outstanding voting power in favor of the Merger.406
The Merger was publicly announced on December 24, 2018.407 Immediately after
announcement, Stollmeyer texted his financial advisor: “Vista’s in love with me (and me
with them). No retirement in my headlights.”408
401 JX-1138 at 42. 402 JX-921 at 1. 403 JX-906 at 1–2. 404 PTO ¶ 3. 405 Id. 406 Id. ¶ 120. 407 Id. ¶ 121. 408 JX-956; see also JX-954 (“Vista loves me and wants us to step on the gas. No retirement in my headlights.”); JX-958 (“Best part – they want me to still run the company. Merry Christmas[.]”).
67 In an internal email, Vista’s Mike McMullan described how Vista had secured the
deal. He bragged that Vista was “able to conduct all of our outside-in work before the
process launched,” which enabled Vista “to move swiftly in the process to provide the
MINDBODY Board with a highly certain offer within 3 days of receiving data room
access.”409
N. The Go-Shop
The Merger Agreement authorized a 30-day go-shop.410 Beginning on Christmas
Eve, Qatalyst reached out to 52 potential bidders, 38 of which were entities that were not
part of the sale process.411 Only eight received the management presentation and signed a
non-disclosure agreement. Only two expressed interest in continuing diligence
thereafter.412
On January 5, 2019, Stollmeyer informed Vista that Luxor and another large
stockholder were trying to put together a bid.413 Stollmeyer told Vista that it was a “low
likelihood” outcome because those parties “likely could only write $100-200mm
checks.”414 Stollmeyer conceded at trial that he should not have revealed this information
to Vista.415 In any event, Luxor refused to sign an NDA, and Friedman admitted at trial
409 JX-968. 410 PTO ¶ 122. 411 JX-1138 at 41. 412 JX-1015 at 3. 413 JX-1038. 414 Id. 415 Trial Tr. at 663:19–665:1 (Stollmeyer).
68 that Luxor wanted to preserve the ability to vote against the merger and bring an appraisal
claim in the future.416 No bid emerged.
On January 6, halfway through the go-shop process, Stollmeyer went on vacation
to Costa Rica.417 He instructed management in an email to decline go-shop presentations
in his absence, “[u]nless it’s urgent.”418 Stollmeyer was signaling his lack of interest in a
competing offer.
O. The Proxy Materials
The Merger Agreement granted Vista rights and obligations related to the
preliminary proxy, the definitive proxy, and any subsequent supplemental disclosures (all
together, the “Proxy Materials”). The parties agreed that the Proxy Materials must not
“contain any untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading.” 419 Section 6.3(b) gave
Vista the right to “a reasonable opportunity to review and comment” on the Proxy Materials
before they were filed.420 The Merger Agreement mandated that Mindbody “may not file
the Proxy Statement or any Other Required Company Filing with the SEC without first
providing [Vista] and its counsel a reasonable opportunity to review and comment
416 Id. at 128:13–129:6 (Friedman). 417 JX-1489 at 42. 418 Id. 419 Id. 420 JX-1138 at 157.
69 thereon[.]”421 Section 6.3(d) obligated Vista to notify Mindbody if it became aware of any
facts that, if not disclosed, would render the Proxy Materials materially misleading or
incomplete.422
Saroya and Stahl both received a summary of Mindbody’s proposed “Background
of the Merger” section.423 Both the summary and the version filed with the SEC stated
only that “[i]n October 2018, representatives of Vista and Mr. Stollmeyer discussed Vista’s
investment strategy and the firm’s interest in learning more about MINDBODY’s approach
to the fitness, beauty and wellness services industries.”424 The preliminary proxy omitted
any references to Stollmeyer’s meeting with in August, Stollmeyer’s attendance at the
CXO Summit in October, or Vista’s expression of interest on October 15.425 Nevertheless,
Stahl replied that the description “makes sense to me,” and Saroya replied, “This works.”426
Mindbody filed the preliminary proxy on January 9, 2019.427 Stahl texted Saroya
on January 10 to remind him to stick to their story, which required saying that “Jeff [Chang]
called you on 11/30 inviting us into the process[.]”428
421 Id. at 157. 422 Id. at 158. 423 JX-1044. 424 JX-1058 at 26. 425 Id. 426 JX-1044 at 1. 427 JX-1058. 428 JX-1066.
70 On January 11, Luxor filed a Schedule 13D stating that the proposed Merger
Agreement “significantly undervalues” Mindbody.429 On January 14, Friedman spoke to
Stollmeyer and asked him why Mindbody had guided down for Q4.430 Stollmeyer
responded that he had “kitchen-sinked” the guidance.431 On January 18, 2019, Mindbody
stockholder Luxor issued a demand for books and records under 8 Del. C. § 220 seeking,
among other things, “the Company’s actual or anticipated Q4 performance, including
subscriber accounts by tier.”432
Stahl and Klomhaus also received a copy of Mindbody’s proposed definitive
proxy.433 Klomhaus did not have any comments or edits.434 Stahl noted that he had “had
some discussions” with counsel about the documents and wanted to review the changes.435
At trial, Stahl testified that he did not believe there were any undisclosed aspects of the
Merger that should have been disclosed.436 Like the preliminary proxy, the definitive proxy
omitted any reference to Stollmeyer’s meeting with Vista in August, Stollmeyer’s
429 JX-1077. 430 Trial Tr. at 79:24–80:23 (Friedman). 431 Id.; id. at 82:8–19 (Friedman). 432 JX-1111 at 9. 433 JX-1139. 434 Id. 435 Id. 436 Trial Tr. at 774:2–10 (Stahl).
71 attendance at the CXO Summit in October, or Vista’s expression of interest on
October 16.437
Stollmeyer reviewed and signed the definitive proxy as CEO.438 On January 23,
2019, Mindbody filed the definitive proxy with the SEC.439
P. The “Massive Beat”
On January 4, 2019, Mindbody determined preliminarily that its Q4 revenue had
come in around $68.3 million.440 Stollmeyer texted White that day, “$68.3M Q4.
Awesome!”441 He advised his management team that this figure reflected 37% growth year
over year and a “massive beat against the Street’s $66 million consensus midpoint.”442
On January 6, Stollmeyer texted White again about the Q4 results: “One question:
should we plan one last Earnings Call? My script: ‘here’s our big beat. Adios mutha
f******s.’”443
On January 24, after Mindbody filed the definitive proxy, White emailed the Audit
Committee to convey his belief that Mindbody should disclose the preliminary Q4
results.444 White noted that Q4 revenue “exceeded consensus pretty meaningfully” and
437 JX-1138 at 26. 438 Id. at 183; Trial Tr. at 466:11–20 (Stollmeyer). 439 PTO ¶ 9; JX-1138. 440 JX-1037 at 2. 441 JX-1032. 442 JX-1037 at 1. 443 JX-1042 (text altered). 444 JX-1141 at 1.
72 that the information should be publicly released by February 7 “so the shareholders have
the information before they vote” on February 14.445 Liaw agreed but expressed concern
that Luxor “may use this information to bolster their position[.]”446 Smith also expressed
concern about the effect of the disclosure on the Merger vote: “What happens
(hypothetically) if the vote fails on Feb. 14th? Just want to understand that first.”447 By
asking about the effect on the vote, they demonstrated that they thought the information
could be important for the vote.
By January 31, Mindbody’s outside counsel had drafted a press release announcing
the preliminary Q4 results.448 As required by the Merger Agreement, Mindbody sent the
draft to Vista.449 After speaking with outside counsel, Klomhaus asked Stahl for “a minute
to chat about my concerns.”450
The Audit Committee met on February 6.451 Mindbody’s outside counsel reported
on Vista’s position.452 The Audit Committee voted against disclosing the Q4 results,
Neither the discussions nor the purported determination appear in the minutes.453
445 Id. 446 Id. 447 Id. 448 JX-1165; JX-1463. 449 JX-1165. 450 Id. 451 JX-1188. 452 Trial Tr. at 2140:15–19 (White). 453 Id. at 2185:21–2186:12 (Smith).
73 During this litigation, the Audit Committee members provided several reasons for
their recommendation. Both Liaw and Smith testified that they were concerned with
setting a precedent of pre-announcing quarterly results if the Merger failed.454 The fact
that a merger vote was pending provided an obvious distinction from ordinary course
situations. There was also already information in the market on the subject, because
Mindbody had issued the Proxy Materials that included Mindbody’s 2019 projections.455
If the Merger failed, Mindbody would not be in the same position for future quarters.
Herman, Smith, and Cunningham all testified at trial that the amount of the revenue
beat was not material.456 That testimony is hard to square with Stollmeyer and White’s
contemporaneous reactions, and it is inconsistent with Company counsel’s preparation of
a press release that would announce the results. This is another issue on which Stollmeyer
changed his testimony at trial. He had acknowledged in his deposition that this information
would be material to an investor, but he maintained at trial that the information would not
be material to a stockholder voting on the Merger.457
454 Id. at 1463:2–20 (Liaw); id. at 2184:4–2185:20 (Smith). 455 JX-1138 at 51. 456 Trial Tr. at 1971:18–1972:1 (Herman); id. at 2178:11–2179:23 (Smith); id. at 949:1–18 (Cunningham). 457 Stollmeyer Dep. Tr. at 527:14–21, 830:9–831:13.
74 Liaw, White, and Smith also testified that releasing the Q4 results, without context,
would be misleading to investors.458 It is not clear why that would be true. Investors know
what preliminary results are. Regardless, the draft press release provided context.459
Q. Litigation Ensues.
Before the Merger closed, Mindbody stockholders filed federal securities class
actions in California and Delaware.460 In the Court of Chancery, Mindbody stockholders
Philip Ryan, Jr. and Donald Friedman filed suit under 8 Del. C. § 225 challenging the
validity of the stockholder vote (the “Section 225 Action”).461 The next day, Luxor filed
an enforcement action in this court under 8 Del. C. § 220 to obtain books and records
concerning the Merger (the “Section 220 Action”).462
To moot the federal suits and aspects of the Section 225 Action, Mindbody issued
supplemental disclosures (the “Supplemental Disclosures”).463 As with the previous SEC
filings related to the Merger, Vista had the opportunity to review the Supplemental
Disclosures before filing. Multiple Vista personnel, including Saroya and Stahl, received
a copy before filing.464 Vista’s outside counsel said they were “scrubbing one more
458 Trial Tr. at 1463:21–1465:9 (Liaw); id. at 2090:17–2091:22 (White); id. at 2184:4– 2185:20 (Smith). 459 JX-1165; JX-1463. 460 JX-1194 at 3. 461 PTO ¶ 19. 462 Id. ¶ 20. 463 JX-1194 at 3–7, 50–83. 464 JX-1192 at 1.
75 time.”465 On February 7, Mindbody issued the Supplemental Disclosures, which added
details about the sale process and other issues.466
ISS and Glass Lewis recommended that stockholders vote for the transaction.467
Analysts also supported the Merger.468 The stockholders approved the Merger during a
special meeting on February 14, 2019.469 The Merger closed the next day.470
R. Vista Hires Stollmeyer.
On February 17, two days after the Merger closed, Stollmeyer retained employment
counsel and began negotiating with Vista over the terms of his post-acquisition
employment. Unlike the formal sale process, those negotiations took months.471
The terms of Stollmeyer’s post-deal employment resembled his pre-deal
employment. Stollmeyer took the same salary and bonus in 2019.472 He received a stock
grant equal to 1.7% of the post-transaction equity, assuming full vesting and no
forfeiture.473
465 Id. 466 JX-1194. 467 JX-1172. 468 See, e.g., JX-551; JX-945; JX-969; JX-1181. 469 PTO ¶¶ 16–17. 470 Id. ¶ 1. 471 JX-1218; JX-1302; JX-1303; JX-1304; JX-1305. 472 JX-1305; Trial Tr. at 474:19–22 (Stollmeyer). 473 JX-1304; JX-1330; JX-1410 at 17.
76 S. This Litigation Takes The Main Stage.
After the Merger closed, the litigation landscape shifted. Mindbody produced
documents in response to the Section 220 action, which Luxor voluntarily dismissed in
August 2019.474
The Section 225 Action moved forward, with discovery concluding in April 2019.475
That same month, Luxor filed an appraisal petition (the “Appraisal Action”).476 In June
2019, Luxor filed a class action lawsuit alleging breach of fiduciary duty claims against
Stollmeyer, White, and Liaw (the “Luxor Action”).477
In October 2019, the court consolidated the Section 225 Action, the Appraisal
Action, and the Luxor Action into this proceeding. The court named Luxor as the lead
plaintiff for purposes of the claims raised in the Luxor Action but permitted the plaintiffs
who had filed the Section 225 Action to continue pursuing the Section 225 claim.
The Section 225 claim moved forward rapidly, and the court held a trial on a paper
record on December 9, 2019.478 After trial, the parties then agreed to a settlement of the
Section 225 claim, which the court approved on December 15, 2020.479
474 PTO ¶ 20. 475 Id. ¶ 23. 476 Id. ¶ 24. The court will address Luxor’s appraisal petition in a later decision to the extent necessary. 477 Id. ¶ 27. 478 Id. ¶¶ 23, 32 479 Id. ¶ 35.
77 Luxor amended its complaint to strengthen its claims for breach of fiduciary duty,
and the defendants moved to dismiss.480 The court issued a decision that dismissed the
claims against Liaw and otherwise denied the motion.481 The decision noted that Liaw’s
dismissal was without prejudice and that “[i]f discovery shows that [Liaw] had a more
significant and compromising role, then subject to the law of the case doctrine, [the
plaintiff] can seek to revisit [Liaw’s] dismissal, should future developments provide a
compelling reason for doing so.”482 Stollmeyer and White filed answers and discovery
ensued.483
After fact discovery closed, Luxor sought leave to amend its complaint. After
receiving leave, Luxor filed the operative complaint on July 27, 2021.484 It dropped White
as a defendant, reasserted claims against Liaw, and added aiding and abetting claims
480 Id. In re Mindbody, Inc., 2020 WL 5870084 (Del. Ch. Oct. 2, 2020) [hereinafter, “Dismissal 481
Decision”]. 482 Id. at *34 n.309 (quoting In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *43 (Del. Ch. June 11, 2020)). 483 PTO ¶ 39. 484 Id.
78 against IVP and Vista.485 Liaw, IVP, and Vista moved for dismissal.486 Stollmeyer moved
for summary judgment.487 The court denied all three motions.488
Liaw and IVP agreed to a settlement, which the court approved.489 That left only
Stollmeyer and Vista as defendants.
The court held trial February 28, 2022, through March 9, 2022.490 Post-trial briefing
concluded on July 14, 2022, and post-trial argument was heard on July 28, 2022.491 The
parties submitted their joint schedule of evidence on August 11, 2022.492
II. LEGAL ANALYSIS
Stollmeyer was an officer and director of a Delaware corporation. In each capacity,
he owed duties of loyalty and care to the corporation and its stockholders as residual
claimants.493 As a function of those duties, Stollmeyer owed a duty to disclose all material
485 Id. ¶ 40. 486 Id. ¶ 42. 487 Id. ¶ 43. 488 Id. ¶¶ 45–46. See Dkts. 398, 399, 401 (In re Mindbody, Inc., S’holder Litig., 2021 WL 5565172 (Del. Ch. Nov. 29, 2021); In re Mindbody, Inc., S’holder Litig., 2021 WL 5564687 (Del. Ch. Nov. 29, 2021); In re Mindbody, Inc., S’holder Litig., 2021 WL 5834263 (Del. Ch. Dec. 9, 2021)). 489 Dkt. 481. 490 Dkts. 461–68. Dkt. 477 (“Pls.’ Opening Post-Trial Br.”); Dkt. 478 (“Defs.’ Opening Post-Trial Br.”); 491
Dkt. 484 (“Pls.’ Answering Post-Trial Br.”); Dkt. 485 (“Defs.’ Answering Post-Trial Br.”); Dkt. 493 (“Post-Trial Oral Arg. Tr.”). 492 Dkt. 492. 493 In re Rural Metro Corp., 88 A.3d 54, 80 (Del. Ch. 2014); In re McDonald’s Corp. S’holder Deriv. Litig, 2023 WL 387292, at *13–15 (Del. Ch. Jan. 26, 2023). In his capacity as a director, Stollmeyer was protected by an exculpatory charter provision, which means
79 information in connection with the Merger.494 Plaintiffs claim that Stollmeyer breached
his fiduciary duties by tilting the sale process in Vista’s favor and by failing to disclose
material information. Plaintiffs contend that Vista aided and abetted those breaches.
A. The Claims Against Stollmeyer
When determining whether corporate fiduciaries have breached their duties, a court
applying Delaware law evaluates their conduct through the lens of a standard of review.495
The standard of review informs the evidentiary burden and provides a framework for legal
analysis. Here, the parties identified an abundance of potential and, at times, competing
legal standards for the claims against Stollmeyer. To chart an analytical course as to those
claims, this decision begins by outlining the complex system of potential legal standards
implicated by the parties’ arguments.
that Plaintiffs would have to prove that Stollmeyer acted disloyally or in bad faith to prevail on a claim against him as a director. Mindbody’s exculpatory charter provision did not protect Stollmeyer from liability when he was acting as an officer. Generally, when a defendant acted in both exculpated and unexculpated capacities, the court must distinguish in which capacity the defendants acted to resolve the claim for liability. See, e.g., In re Oracle Corp. Deriv. Litig., 2021 WL 2530961, at *2 (Del. Ch. June 21, 2021). Because Plaintiffs have proven that Stollmeyer acted disloyally, however, this decision need not make that distinction and the exculpatory charter provision plays no role in the legal analysis. 494 Stroud v. Grace, 606 A.2d 75, 84 (Del. 1992) (“[The duty of candor] represents nothing more than the well-recognized proposition that directors of Delaware corporations are under a fiduciary duty to disclose fully and fairly all material information within the board’s control when it seeks shareholder action.”). 495 See Chen v. Howard-Anderson, 87 A.3d 648, 666 (Del. Ch. 2014); In re Trados Inc. S’holder Litig., 73 A.3d 17, 35–36 (Del. Ch. 2013).
80 Delaware law has three transactional standards of review: the business judgment
rule, enhanced scrutiny, and entire fairness.496
Where a stockholder challenges a change-of-control transaction like an all-cash
merger, enhanced scrutiny supplies the presumptive standard of review. In an M&A
setting, the key features of the enhanced scrutiny test require “(a) a judicial determination
regarding the adequacy of the decision[-]making process employed by the directors,
including the information on which the directors based their decision; and (b) a judicial
examination of the reasonableness of the directors' action in light of the circumstances then
existing.”497 The defendant fiduciaries bear the burden of proof on both elements.498
Where enhanced scrutiny under Revlon presumptively applies, defendant fiduciaries
can invoke Corwin to lower the standard to an irrebuttable version of the business judgment
rule. To lower the standard, the transaction must have been “approved by a fully informed,
uncoerced majority of the disinterested stockholders.”499 A single disclosure deficiency
will defeat Corwin cleansing.500 The plaintiff bears the initial burden of identifying alleged
496 Chen, 87 A.3d at 666 (quoting Reis v. Hazelett Strip-Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011)). 497 Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 45 (Del. 1994). 498 Id. 499 Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304, 305–06 (Del. 2015). 500 In re Xura, Inc. S’holder Litig., 2018 WL 6498677, at *12 (Del. Ch. Dec. 10, 2018); van der Fluit v. Yates, 2017 WL 5953514, at *8 n.115 (Del. Ch. Nov. 30, 2017).
81 disclosure problems, but the defendants bear the burden of proving at trial that the
stockholder vote was fully informed.501
Where a conflicted fiduciary uses their position to mislead a board in a sale process,
committing “fraud on the board,” there are other potential legal frameworks for evaluating
the claim. One framework incorporates the conduct that constituted fraud on the board as
part of an analysis using the entire fairness standards of review.502 Another framework
examines whether the plaintiff proved the traditional elements of a claim for common law
or equitable fraud, but with the focus on the board rather than the plaintiff as the victim.503
The different frameworks have different approaches to burden allocation.
501 In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839, at *7–8 (Del. Ch. Jan. 5, 2017). 502 See Dismissal Decision at *25 n.229 (discussing cases); see also Cinerama, Inc. v. Technicolor, Inc. (Technicolor Plenary III), 663 A.2d 1156, 1170 n.25 (Del. 1995) (suggesting that, when the default standard of review is the business judgment rule, fraud on the board causes the standard of review to escalate to entire fairness); Mills Acq. Co. v. Macmillan, Inc., 559 A.2d 1261, 1283–84 & n.33 (Del. 1989) (suggesting that, where enhanced scrutiny applies, fraud on the board causes the standard of review to escalate to entire fairness). Applying a traditional fiduciary standard makes the most sense when evaluating how a proven fraud on the board affects the potential liability of defendant fiduciaries who were misled or manipulated by the fraudster. In that scenario, if the fiduciaries can satisfy the transactional standard, then they did not breach their duties, regardless of having been misled or manipulated. If the misled or manipulated directors cannot prove that the transaction satisfied the fiduciary standard of review, then they have committed a fiduciary breach, albeit likely a breach of the duty of care for which they would be exculpated. 503 See Firefighters’ Pension Sys. of City of Kansas City, Missouri Trust v. Presidio, Inc., 251 A.3d 212, 274–55 (Del. Ch. 2021) (citing Joel Edan Friedlander, Confronting the Problem of Fraud on the Board, 75 Bus. Law. 1441 (2020)). There is merit to treating fraud on the board as a separate theory of liability that can be committed by anyone, including a non-fiduciary. RBC Cap. Mkts., LLC v. Jervis, 129 A.3d 816, 865 (Del. 2015) (explaining that trial court’s award of money damages against a contractual counterparty,
82 In certain circumstances, a plaintiff can pursue a claim for breach of the duty of
disclosure as an independent path to liability.504 When a corporation seeks stockholder
action, the duties of loyalty and care manifest themselves contextually in a “duty to disclose
fully and fairly all material information within the board’s control when it seeks
shareholder action[.]”505 Unlike under Corwin, where the defendants have the burden of
proof, the plaintiff bears the burden of proving the elements of a disclosure claim.506
In briefing, the parties grappled with the complicated surfeit of standards described
above. Plaintiffs briefed enhanced scrutiny, entire fairness, and disclosure as independent
paths to liability.507 Stollmeyer argued that enhanced scrutiny is the presumptive standard,
but that Corwin cleansing applies, resulting in an irrebuttable version of the business
judgment rule governing the case.508 The parties’ respective positions read like a legal
a financial advisor, “was premised on [the financial advisor]’s ‘fraud on the Board’”). Ultimately, fraud-on-the-board theory is a developing area of Delaware law, which this decision does not address given the selected legal standard. 504 When entire fairness applies, disclosure becomes one element of the fair process dimension, rather than an independent claim for fiduciary breach. See, e.g., Weinberger, 457 A.2d at 711 (“Part of fair dealing is the obvious duty of candor . . . . [O]ne possessing superior knowledge may not mislead any stockholder by use of corporate information to which the latter is not privy.”). 505 Stroud, 606 A.2d at 84. 506 Solomon v. Armstrong, 747 A.2d 1098, 1128 (Del. Ch 1999) (“As far as claims of material misstatements, omissions, and coercion go, the law is clear that plaintiff bears the burden of proof that disclosure was inadequate, misleading, or coercive.”). 507 See Pls.’ Opening Post-Trial Br. at 68–83; Pls.’ Answering Post-Trial Br. at 15–40. 508 See Defs.’ Opening Post-Trial Br. at 52–58; Defs.’ Answering Post-Trial Br. at 12–13.
83 version of a choose-your-own-adventure story, where all of Plaintiffs’ adventures lead to
liability and all of Stollmeyer’s adventures lead to exoneration.
For a court, a one-adventure approach is desirable. This decision applies the
approach urged by Stollmeyer—addressing Plaintiffs’ claims against Stollmeyer under
Revlon, evaluating the viability of Corwin, and assessing disclosure as an independent path
to liability.509 Adopting Stollmeyer’s approach, this decision finds that the conduct leading
to the Merger fell outside of the range of reasonableness.
Notably, there is a conflict between the allocation of the burden of proof on Corwin
cleansing and the claim for breach of the duty of disclosure. Rather than conducting the
analysis twice, once with the burden of proof on Stollmeyer under Corwin and once with
the burden of proof on Plaintiffs for the breach of fiduciary duty claim, this decision
conducts the analysis once with the burden on Plaintiffs. Using that framework, this
decision finds that Corwin cleansing is not available because Stollmeyer failed to disclose
material information. That finding also provides the predicate for Plaintiffs’ claim for
breach of the duty of disclosure. Because Plaintiffs prevail, allocating the burden of proof
to them proves inconsequential to the outcome and avoids the need to analyze the
disclosure issues twice.
509 This approach has the added benefit of aligning the court’s legal analysis with the parties’ focus in briefing. Compare Pls.’ Opening Post-Trial Br. at 68–74 (devoting six pages to addressing Revlon arguments) and Defs.’ Opening Post-Trial Br. at 62–94 (devoting over thirty pages to addressing same), with Pls.’ Opening Post-Trial Br. at 80– 83 (devoting fewer than three pages to addressing entire fairness arguments) and Defs.’ Opening Post-Trial Br. at 59–63 (devoting fewer than four pages to addressing same).
84 1. The Sale-Process Claim
Under Revlon, “‘directors are generally free to select the path to value
maximization, so long as they choose a reasonable route to get there.’”510 The question
posed is whether the fiduciaries have exercised their powers “in the service of a specific
objective: maximizing the sale price of the enterprise.”511 Generally speaking, to satisfy
enhanced scrutiny under Revlon, defendants bear the burden of demonstrating both (i) the
reasonableness of the decision making process employed by the directors, including the
information on which the directors based their decision, and (ii) the reasonableness of the
directors’ action in light of the circumstances then existing.512
Under Delaware law, “[w]hen directors bias the process against one bidder and
toward another not in a reasoned effort to maximize advantage for the stockholders, but to
tilt the process toward the bidder more likely to continue current management, they commit
a breach of fiduciary duty.”513 This is also true when a single board member causes the
board to favor a bidder “not in a reasoned effort to maximize advantage for the
510 In re Answers Corp. S’holders Litig., 2011 WL 1366780, at *3 (Del. Ch. Apr. 11, 2011) (quoting In re Dollar Thrifty S’holder Litig., 2010 WL 5648895, at *17 (Del. Ch. Sept. 8, 2010)). 511 Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001) (citing Revlon, 506 A.2d at 183); see also Revlon, 506 A.2d at 182–83 (explaining that, in the change-of-control context, the duty of loyalty requires “the maximization of the company’s value at a sale for the stockholders’ benefit”); Paramount, 637 A.2d at 44 (“In the sale of control context, the directors must focus on one primary objective—to secure the transaction offering the best value reasonably available for the stockholders—and they must exercise their fiduciary duties to further that end.”). 512 Paramount, 637 A.2d at 45. 513 In re Topps Co. S’holders Litig., 926 A.2d 58, 64 (Del. Ch. 2007).
85 stockholders,” but because of “personal reasons.”514 “The sins of just one fiduciary can
support a viable Revlon claim.”515 Thus, “the paradigmatic context for a good Revlon claim
. . . is when a supine board under the sway of an overweening CEO bent on a certain
direction[] tilts the sales process for reasons inimical to the stockholders’ desire for the best
price.”516 Reframed more generally, “the paradigmatic Revlon claim involves a conflicted
fiduciary who is insufficiently checked by the board and who tilts the sale process toward
his own personal interests in ways inconsistent with maximizing stockholder value.”517
When a plaintiff proves a paradigmatic Revlon claim, that showing calls into
question the reasonableness of the decision-making process employed and the
reasonableness of the directors’ action in light of the circumstances then existing.
Plaintiffs proved that this case fits the paradigm. Stollmeyer suffered a disabling
conflict because he had an interest in near-term liquidity, a desire to sell fast, and an
expectation that he would receive post-Merger employment accompanied by significant
equity-based incentives as a Vista CXO. Stollmeyer tilted the sale process by strategically
driving down Mindbody’s stock price and providing Vista with informational and timing
514 In re Columbia Pipeline Gp., Inc. Merger Litig., 2021 WL 772562, at *41 (Del. Ch. Mar. 1, 2021). 515 Dismissal Decision at *14 (citing Kahn v. Stern, 183 A.3d 715, 2018 WL 1341719, at *1 n.4 (Del. 2018) (ORDER)); MacMillan, 559 A.2d at 1283; Xura, 2018 WL 6498677, at *13; Toys “R” Us, 877 A.2d 975, 1002–03 (Del. Ch. 2005). 516 877 A.2d at 1002 (quoted favorably in Kahn, 2018 WL 1341719, at *1 n.4)). 517 Dismissal Decision at *13.
86 advantages during the due-diligence and go-shop periods. And the Board failed to
adequately oversee Stollmeyer.
Because facts concerning the sale-process breaches were not disclosed to
stockholders, the stockholder vote was not fully informed. Defendants, therefore, are not
entitled to Corwin cleansing and Plaintiffs have provide their disclosure claim against
Stollmeyer.
a. Stollmeyer Suffered Disabling Conflicts.
“Delaware law recognizes that liquidity is one benefit that may lead directors to
breach their fiduciary duties if a desire to gain liquidity caused them to manipulate the sales
process and subordinate the best interests of the corporation and the stockholders as a
whole.”518 “Delaware law also recognizes that management’s prospect of future
employment can give rise to a disabling conflict in the sale context.”519 “Regardless of the
underlying theory, the key in evaluating whether financial interests gave rise to a disabling
conflict is to look to the subjective intent of the fiduciary.”520
Plaintiffs proved at trial that, in 2018, Stollmeyer was subjectively motivated in
large part by his need for liquidity. To recap, by 2018:
• Stollmeyer had never experienced a big liquidity event.521
518 Dismissal Decision at *15 (cleaned up) (collecting cases). 519 Id. (cleaned up) (collecting cases). 520 Id. at *16 (cleaned up) (collecting cases). 521 JX-1337 at 10 (“[F]or the entrepreneur or particularly for the CEO, [an IPO] is not a liquidity event.”).
87 • He had made substantial financial commitments by investing, loaning, or pledging: (i) nearly $1 million into his wife’s wellness company, (ii) $300,000 into “Stollmeyer Technologies, LLC,” (iii) money to his brother and his former business partner for their own real estate purchases, and (iv) $3 million to a local college, of which $2.4 million was unpaid.522
• He openly and unapologetically described his unhappiness with his pre- Merger financial situation in a post-merger interview for Cremades’s “dealmakers” podcast, stating how “98% of his net worth” had been “locked inside” “extremely volatile” Mindbody stock, and when he faced the expense of “kids in college,” he regularly sold “tiny bits” of his stake in the public market under his 10b5-1 plan.523
• He described sales made pursuant to his 10b5-1 plan as “kind of like sucking through a very small straw.”524
• He emailed his financial advisor to ask that he “estimate my cash position” in light of his impending expenses, stating that the timing and amount of his 10b5-1 sales were “top of mind” because of “greater than expected H1 cash outlays[.]”525
• His spending required him to “dig[] into his LOC [line of credit]” to fund additional financial commitments.526
• He described his pre-Merger financial position in his book as the “living at or near the precipice of financial ruin,” and he further wrote that, post- Merger, “my family and I don’t have to worry about money anymore.”527
Plaintiffs further proved that Stollmeyer became uniquely smitten with Vista before
the formal sale process began. To recap:
• Stollmeyer met with Qatalyst’s Chang on August 7, and although Stollmeyer “had never been open-minded to having dialogue” with private equity before
522 JX-1142; Defs.’ Demonstrative 12 at 1–2. 523 JX-1337 at 10. 524 Id. 525 JX-145 at 1. 526 Id. 527 JX-1647 at 181.
88 that time, his posture had changed by that point, and he was “more open to having a dialogue” with private equity firms.528
• Chang connected Stollmeyer to Saroya immediately after the meeting,529 and Stollmeyer met with Vista on September 4.530 Chang waited a week to connect Stollmeyer with other private equity firms,531 and Stollmeyer did not meet with those firms until mid-October and early November.532
• Chang reported internally that Stollmeyer had “talked about how he is tired of being public and wanted me to re-connect him w[ith] Vista and Thoma. Probably a 2019 deal is my guess.”533
• During the September 4 meeting, Stollmeyer told Vista that he was looking to “find a good home for his company” and that he was “getting tired” but did still expect to “stay in his seat 2-3 more years.”534
• Stollmeyer attended the CXO Summit, where he saw presentations from Vista leadership about the wealth of portfolio company CEOs. Stollmeyer described the presentations as “very impressive”535 and “mind blowing/inspiring.”536
• Stollmeyer sent a colleague “money shots,” from the Vista presentation,537 two of which focused on Vista’s 2016 acquisition of Marketo for $1.8 billion and subsequent sale of Marketo in 2018 for $4.75 billion.538
528 Trial Tr. at 255:22–257:1 (Chang). 529 JX-230. 530 JX-264; JX-277. 531 JX-238; JX-239. 532 JX-566; see also JX-317; Stollmeyer Dep. Tr. at 292:18–293:2. 533 JX-231 at 1; Trial Tr. at 374:18–376:13 (Stollmeyer) (stating that “maybe I was conveying that with my body language. It was a really tough and challenging time for me personally, wearing both hats of CEO and CTO and trying to find our new CTO”). 534 JX-277. 535 JX-327. 536 JX-328. 537 JX-333. 538 JX-334; JX-335; see also Stollmeyer Dep. Tr. at 364:5–366:14.
89 • Stollmeyer pitched Mindbody to Vista during the CXO Summit,539 asked Vista to put him in touch with a founder who had sold to Vista,540 and gave Vista the impression that he was “hyper focused on maintaining culture and ensuring his business finds the right home that will accelerate growth, not cause it to falter.”541
• Stollmeyer told Mansbach after the CXO Summit that Vista “really love[s] me, I love them.”542
• Vista understood that they had largely sold Stollmeyer on a transaction, touting internally that Stollmeyer “loved” them and that they “have built a strong relationship with [Stollmeyer].”543
• After meeting his interactions with Vista, Stollmeyer saw Vista as “his solution.”544 He could keep his position as CEO, reload with equity, and participate in a follow-on sale.545 Stollmeyer told his financial advisor that “he could make as much money over the next three years as he did the first go around.”546
Moreover, Plaintiffs proved that timing was an issue for Stollmeyer. In 2018, he
needed liquidity, was tired of running a public company, and had a relatively limited
window for effectuating a transaction. He knew that it was advantageous to before the
sunset of the super-voting shares loomed. It would also be easier to sell while Liaw
remained on the Board, and before Luxor, who had told Stollmeyer it would oppose a sale
of Mindbody, joined. Topping things off, Qatalyst cautioned Stollmeyer on October 11,
539 Trial Tr. at 389:20–390:23 (Stollmeyer). 540 JX-344; see also Stollmeyer Dep. Tr. at 384:9–385:21. 541 JX-344. 542 Stollmeyer Dep. Tr. at 326:8–328:12. 543 JX-350; JX-372. 544 Trial Tr. at 183:5-11 (Handler). 545 Id. at 72:18–74:6 (Friedman). 546 JX-1262.
90 2018, to be careful providing non-public information to Vista because they liked to move
fast. For Stollmeyer, that was a plus. Rather than taking steps to slow Vista down, he
helped them get ahead.
In response to this compelling factual record, Defendants beat on the same dead
horse that they championed at the dismissal stage. They argue that because of his large
stock holdings, Stollmeyer’s interests had to be aligned with the stockholders as a whole.
It is true “that material amounts of stock ownership can serve to align the interests of
fiduciaries with the interests of other stockholders.”547 But that does not mean that owning
material amounts always align the interests of a fiduciary with the interest of the other
stockholders.
In this case, Stollmeyer’s stock ownership did not result in fully aligned interests.
Defendants’ mathematical argument assumes, counterfactually, that Stollmeyer valued the
immediate incremental dollar value per share in a sale over everything else. It ignores
Stollmeyer’s craving for a liquidity event, his fear of near-term market risk, and the upside
Stollmeyer expected to capture under Vista ownership. Defendants’ counterfactual theory
requires the court to ignore everything Stollmeyer said and did.
The record overwhelmingly supports Plaintiffs’ theory. To sum it up, Stollmeyer
wanted to sell for idiosyncratic reasons. He wanted to sell fast to a “good home” sheltered
from the pressures of being a public company. He wanted both near-term liquidity and a
547 Dismissal Decision at *14 (collecting cases).
91 potential for post-closing upside. And Vista offered all of this. He said it best himself: He
loved Vista, and they loved him.
b. Stollmeyer Tilted The Sale Process In Vista’s Favor.
Plaintiffs proved that Stollmeyer created advantages for Vista in the sale process.
The record is riddled with instances when Stollmeyer tilted the playing field in Vista’s
favor.
Stollmeyer did not have Board authorization to explore a sale of Mindbody until
mid-October 2018.548 Before then, he met twice with Vista and signaled that Mindbody
could be an acquisition target. During his first meeting with Vista on September 4,
Stollmeyer said that he “would like to find a good home for his company.”549 Stollmeyer
then pitched Mindbody to Vista during the CXO Summit on October 9.550 After the
summit, Vista had the impression that Stollmeyer “is hyper focused on maintaining culture
and ensuring his business finds the right home that will accelerate growth, not cause it to
falter.”551 Vista immediately began drafting a memorandum for its Investment Committee
and preparing its expression of interest.552
548 Trial Tr. at 538:18–22 (Stollmeyer). 549 JX-277. 550 Trial Tr. at 389:20–390:23 (Stollmeyer). 551 JX-344. 552 JX-1461 at 1.
92 At least by October 11, Stollmeyer knew that Vista might attempt to move fast to
gain a competitive advantage.553 Rather than slowing Vista down, Stollmeyer helped Vista
get ahead. After receiving Vista’s expression of interest on October 15, Stollmeyer took
his time telling his fellow directors. He informed management on October 17, but he swore
them to secrecy.554 He informed Liaw on October 18. He called Vista’s references on
October 19. It was not until October 23 that Stollmeyer informed the other directors
through a series of individual conversations that let him control the message.555 During the
same period, his conversations with Vista were “progressing rapidly.”556 By delaying
before informing the Board, Stollmeyer postponed the formal commencement of a sale
process and gave Vista a head start.
Vista used that head start to rev up its process. Vista knew that Stollmeyer was
looking for a good home for his company, was a willing seller, and had contacted Vista’s
references.557 Based on that information, Saroya authorized retaining Bain to prepare an
“outside-in” market analysis of Mindbody that would take four to six weeks to complete.558
By starting the process in mid-October, Vista was positioned to make a firm offer in early
553 Trial Tr. at 545:14–18 (Chang). 554 JX-410 at 1. 555 See Weinberger, 457 A.2d at 711–12. 556 JX-410 at 1. 557 JX-421 (Saroya: “Yup, I was aware.”). 558 JX-681.
93 December.559 None of the strategic bidders so much as heard about the process until
November 19. No other financial bidders were contacted until December 3 and 4.
The skewed sale process had an obvious effect. When Vista was ready to make a
firm offer in early December, the other bidders were still in the early stages.560 By
December 20, only Vista and H&F remained in the process.561 Vista made its “best and
final” offer on December 20.562 When Qatalyst tried to prompt H&F to bid, H&F lamented
internally that they needed more time.563
Stollmeyer was unabashed in his preference for Vista. After the Transaction
Committee adopted the Guidelines requiring management to obtain “authorization for
outbound communications to potential strategic parties or financial advisors,” Stollmeyer
made an unauthorized call to Vista to tip them that Mindbody would be commencing a
formal sale process.564 He later entertained an invitation to attend a Vista-sponsored charity
event, thinking he would “show a little leg.”565 Meanwhile, he rejected bidders that he
disliked for personal reasons.566
559 JX-825. 560 JX-876 at 1 (Qatalyst employee emailing Chang on December 19 that Thoma Bravo was “just much further behind in their thinking . . . . Level of questions is much more basic so far”); JX-877 (Recruit still early in diligence by the time Vista had made an offer). 561 JX-886 at 3. 562 JX-917. 563 JX-951 (“[W]e are processing, need 2 more weeks to sign.”). 564 Stollmeyer Dep. Tr. at 626:12–23; JX-487. 565 JX-552. 566 JX-670; JX-671; Trial Tr. at 72:18–74:6 (Friedman).
94 Stollmeyer did not tell other bidders in September that he was looking for a good
home for his company. Stollmeyer did not check other bidders’ references in October.
Stollmeyer did not tip other bidders in November that Mindbody was commencing a formal
sale process. Stollmeyer did not breach the Guidelines to communicate with other bidders.
Stollmeyer did not suggest showing other bidders “a little leg.”567 No other bidder knew
that Stollmeyer had a deal price bogey of $40 per share. No other bidder knew to get
approval to bid up to $40 per share. No other bidder could say “[w]e were able to conduct
all of our outside-in work before the process launched.”568 No other bidder was able “to
move swiftly in the process to provide the MINDBODY Board with a highly certain offer
within 3 days of receiving data room access.”569
Chang warned Stollmeyer that “[t]he more [that Vista personnel] think or feel
you’re in their camp, the less $ they’ll pay.”570 And that is what happened. Vista had the
authority from the Investment Committee to pay up to $40 per share, but it had no reason
to get there. Without competitive pressure, the Company had no leverage to extract a
higher price. Vista ended up paying $36.50 per share, less than the midpoint of their range
and below the predictions of the most knowledgeable deal-team members. Without
Stollmeyer’s help, Vista would not have gotten the Company for $36.50 per share.
567 JX-552. 568 JX-968. 569 Id. 570 JX-617.
95 c. The Board Process
Directors can manage conflicts if they are aware of them. The Mindbody Board did
not know about the conflicts that infected the sale process. Not surprisingly, the Board did
not manage them effectively.
To recap:
• The Board did not know about Stollmeyer’s need for liquidity or IVP’s desire for a near-term exit their Mindbody investment.
• The Board did not know the details of Stollmeyer’s September 5 meeting with Vista.
• The Board did not know that Stollmeyer found the presentations at the CXO Summit to be “mind blowing/inspiring.”571
• The Board did not know that during the CXO Summit, Stollmeyer told Vista that he wanted to find a home for his Company.
• The Board did not know that after the CXO Summit, Stollmeyer felt that the Vista team “really love[s] me, I love them.”572
• The Board did not know that Stollmeyer checked Vista’s references before informing the majority of the Board of Vista’s expression of interest.
• The Board did not know that Qatalyst leaked Stollmeyer’s “40 min” price.
• The Board did not know that Stollmeyer had tipped Vista about the start of the formal sale process.
• The Board did not know that Stollmeyer wanted to “show a little leg” to encourage Vista.573
• The Board did not know of Vista’s huge head start.
571 JX-328. 572 Stollmeyer Dep. Tr. at 326:8–328:12. 573 JX-552.
96 In short, the Board was in the dark. Stollmeyer’s actions deprived the Board of the
information needed to employ a reasonable decision-making process. Given the Board’s
lack of knowledge, Stollmeyer cannot rely on the Board’s actions to support the
reasonableness of the sale process or the ultimate outcome.
2. Corwin Cleansing And The Disclosure Claim
When enhanced scrutiny under Revlon is the presumptive standard of review, a
defendant can restore the business judgment rule through Corwin cleansing by
demonstrating that the transaction was “approved by a fully informed, uncoerced majority
of the disinterested stockholders.”574 Ordinarily, the directors bear the burden of proof at
trial to establish Corwin cleansing. For the reasons already discussed, the court has
allocated the burden to Plaintiffs to establish a disclosure violation.
In this case, the stockholders were as in the dark as the Board. Generally, when a
plaintiff proves the paradigmatic Revlon claim, a defendant will not be able to show that
the stockholder vote was fully informed, precisely because the Board did not know about
and could not disclose information about the officer’s machinations.575 This generalization
plays out here. The stockholders were not made aware of Stollmeyer’s conflicts or the way
in which the process favored Vista. This is more than sufficient to defeat a Corwin defense.
The Corwin analysis could end here. Because, however, Plaintiffs’ disclosure theories are
also relevant to the aiding and abetting analysis, a more thorough review is warranted.
574 Corwin, 125 A.3d at 305–06. 575 See, e.g., Dismissal Decision at *26; Xura, 2018 WL 6498677, at *12–13; In re Lear Corp. S’holder Litig., 926 A.2d 94, 114–15 (Del. Ch. 2007).
97 Plaintiffs contend that Stollmeyer breached his duty of disclosure by keeping secret
his pre-acquisition interactions with Vista (the “process-based disclosures”) and by joining
Stollmeyer’s decision not to disclose the Q4 results before the shareholder vote (the “Q4-
results disclosures”).
An omitted fact is material where “there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.”576 To be material, an
omitted fact must have “significantly altered the ‘total mix’ of information made
available.”577 When assessing materiality, courts must balance “the benefits of additional
disclosures against the risk that insignificant information may dilute potentially valuable
information.”578 Although a fiduciary need not give a play-by-play account, “when
fiduciaries choose to provide the history of a transaction, they have an obligation to provide
shareholders with ‘an accurate, full, and fair characterization of those historic events.’”579
576 Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). 577 Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994) (quoting TSC Indus., 426 U.S. at 449). 578 In re Volcano Corp. S’holder Litig., 143 A.3d 727, 749 (Del. Ch. 2016); see also Solomon, 747 A.2d at 1128 (“The theory goes that there is a risk of information overload such that shareholders' interests are best served by an economy of words rather than an overflow of adjectives and adverbs in solicitation statements.”). 579 David P. Simonetti Rollover IRA v. Margolis, 2008 WL 5048692, at *12 (Del. Ch. June 27, 2008) (quoting Globis P’rs, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *14 (Del. Ch. Nov. 30, 2007)); see also Clements v. Rogers, 790 A.2d 1222, 1242–43 (Del. Ch. 2001) (“In a transaction where the outcome is foreordained by the majority stockholder's voting power and where that voting power precludes the Special Committee from finding other purchasers, the effective functioning of the Special Committee as an informed and aggressive negotiating force is of obvious importance to the public stockholders. When a
98 “[O]nce defendants travel[] down the road of partial disclosure of the history leading up to
the [transaction] …, they ha[ve] an obligation to provide the stockholders with an accurate,
full, and fair characterization of those historic events.”580
A violation of the duty of disclosure can implicate the duties of either loyalty or
care. A “violation of the duty of loyalty is implicated where the required disclosure was
made in ‘bad faith, knowingly or intentionally.’”581 For a non-exculpated officer like
Stollmeyer, liability can be premised on gross negligence.582
Stollmeyer read the definitive proxy and the Supplemental Disclosures before they
were filed, and he signed the Proxy Materials as CEO.583 He was also in a unique position
of informational asymmetry at the time of the stockholder vote, as only he and Vista
employees knew of the nature and even existence of some of their interactions leading up
Proxy Statement details the functioning of that process, it must do so in a fair and balanced manner that does not create a materially misleading impression of how the Committee actually operated in fact.”) (citations omitted). 580 Arnold, 650 A.2d at 1280. 581 Crescent/Mch I P’rs, L.P. v. Turner, 846 A.2d 963, 987 (Del. Ch. 2000) (quoting O'Reilly v. Transworld Healthcare, Inc., 745 A.2d 902, 915 (1999)). 582 See Harcum v. Lovoi, 2022 WL 29695, at *27 (Del. Ch. Jan. 3, 2022) (“As discussed above, the Complaint does not state a claim that the Proxy contained material omissions or inaccurate disclosures. Even if any of the alleged omissions or inaccurate disclosures were material, I am not persuaded that they were the product of gross negligence on the part of [individual defendants] in their capacities as officers of the Company.”); In re Pattern Energy Gp. Inc. S’holders Litig., 2021 WL 1812674, at *66 (Del. Ch. May 6, 2021) (“An officer's compliance with the duty of care is evaluated for gross negligence.”); In re Baker Hughes Inc. Merger Litig., 2020 WL 6281427, at *15 (Del. Ch. Oct. 27, 2020) (“Under Delaware law, the standard of care applicable to the fiduciary duty of care of an officer is gross negligence.”). 583 JX-1138 at 183; Trial Tr. at 466:11–20 (Stollmeyer).
99 to the Merger. Stollmeyer knowingly withheld information from the stockholders by
painting his interactions with Vista in a sterile light. The sterilized narrative begins with
Stollmeyer’s September 4 meeting with Stahl and Saroya. The Supplemental Disclosures
state that
a representative of Vista emailed Stollmeyer, offering to meet for lunch, which took place on September 4, 2018, and at which Mr. Stollmeyer provided the representative of Vista with a general overview of MINDBODY and its approach to the fitness beauty and wellness services industries as was typical for Mr. Stollmeyer to present to potential investors.584
It is true that Stollmeyer met with Vista on September 4. The Supplemental Disclosures
fail to state that Stollmeyer invited discussions about an acquisition by saying he wanted
to find a “good home” for his company, that he was “getting tired,” and that he expected
to “stay in his seat 2–3 more years.”585 Contrary to the disclosure, the meeting was not
“typical” for Stollmeyer—he did not provide this information to any other potential
acquirers in August, September, or October 2018.586
The Supplemental Disclosures next describe Stollmeyer’s attendance at the CXO
Summit as if it were a run-of-the-mill industry gathering.
In October 2018, at that “meet and greet” annual conference hosted by Vista, at which Mr. Stollmeyer was present as an attendee on October 8th and 9th, representatives of Vista and Mr. Stollmeyer discussed Vista’s investment strategy and the
584 JX-1195 at 4. 585 JX-277. 586 Trial Tr. at 525:8–526:11 (Stollmeyer).
100 firm’s interest in learning more about MINDBODY’s approach to the fitness, beauty and wellness services industries.587
The disclosure omits that during the CXO Summit, Stollmeyer reiterated his intention to
explore a sale of Mindbody,588 without any Board authorization to do so.589
The Supplemental Disclosures also provide an anodyne description of Vista’s
October 15 expression of interest, stating only that “Vista indicated to Mr. Stollmeyer that
it was interested in pursuing strategic transaction discussions with MINDBODY.” 590 In
reality, Saroya and Stollmeyer spoke for 25 minutes over the phone, and Saroya shared that
Vista saw Mindbody’s stock price correction as a buying opportunity, was willing to pay a
“substantial premium” to Mindbody’s then-trading stock price of $33.27 per share, and did
not see any need for an “automatic exit” for management.591
In addition to the partial disclosures sterilizing the description of Stollmeyer’s
interactions with Vista, the Proxy Materials are completely silent as to the following
events:
• Stollmeyer’s reference call with a Vista portfolio CEO on October 19.592
• Chang’s tip to Vista on November 6 that Stollmeyer wanted $40 per share.593
587 JX-1195 at 4. 588 JX-1461 at 1. 589 Trial Tr. at 538:18–22 (Stollmeyer). 590 JX-1195 at 4. 591 JX-410 at 1. 592 JX-1442; Trial Tr. at 543:10–19, 559:3–6 (Stollmeyer). 593 JX-533.
101 • Stollmeyer’s call to Saroya on November 10, in violation of the Guidelines, tipping him that Mindbody would be running a sale process.594
• Saroya’s invitation for Stollmeyer to attend a charity event in Miami, and Stollmeyer’s initial acceptance as long as he could bring his wife.595
The Proxy Materials create a false narrative in which Stollmeyer met casually with
Vista on September 4 and October 9, Vista expressed general interest in a transaction on
October 15, and then Vista learned of the formal sale process with other potential acquirers
on November 30. This is not an “accurate, full and fair characterization” of those events.596
Perhaps one of these disclosure issues, standing alone, would not meet the
materiality standard. Taken together, however, the partial and complete omissions altered
the total mix of information available to Mindbody’s stockholders. Plaintiffs proved that
Stollmeyer breached his fiduciary duties in the process-based disclosures.
Because the Plaintiffs proved one disclosure violation, this decision does not rule
on the Q4-results disclosure.
B. The Claims Against Vista
Plaintiffs advance two theories of liability for aiding and abetting against Vista.
They first argue that Vista aided and abetted Stollmeyer’s sale-process breaches, but that
claim is procedurally improper. The viability of Plaintiffs’ claim against Vista turns on
whether Vista aided and abetted the disclosure violations, which it did.
594 Stollmeyer Dep. Tr. at 626:12–23. 595 JX-1490 at 44. 596 Arnold, 650 A.2d at 1280.
102 1. The Sale-Process Breaches
In almost three years of litigation and through four iterations of its complaint,
including the last version when Vista was added as a party following the conclusion of fact
discovery, Plaintiffs never asserted that Vista aided and abetted the sale-process breaches.
Vista moved to dismiss Plaintiffs’ claims, and the parties fully briefed that motion.597
Nowhere in the parties’ briefing did Plaintiffs raise (or did Vista expressly anticipate
Plaintiffs raising) an argument that Vista aided and abetted in the sale-process breaches.
Plaintiffs asserted this theory for the first time in post-trial briefing, relying primarily on
an oral motion made at the conclusion of trial pursuant to Court of Chancery Rule 15(b).598
Whether to permit post-trial amendment is a matter for this court’s discretion.599
The primary consideration “is prejudice to the opposing party.”600 Although not required
by law, the court routinely denies parties’ attempts to raise new claims in post-trial
briefing.601 In at least two cases, this court has refused to allow a party to assert aiding and
597 Dkt. 342 (Vista’s Mot. to Dismiss); Dkt. 343 (Vista’s Opening Br. in Support of Mot. to Dismiss); Dkt. 363 (Pls.’ Answering Br. in Opposition to Mot. to Dismiss); Dkt. 385 (Vista’s Reply Br. in Support of Mot. to Dismiss). 598 Pls.’ Opening Post-Trial Br. at 84 n.480. 599 Those Certain Underwriters at Lloyd’s, London v. Nat’l Installment Ins. Servs., Inc., 2008 WL 2133417, at *7 (Del. Ch. May 21, 2008) [hereinafter “Lloyd’s”]. 600 Id. at *8. 601 See Zhou v. Deng, 2022 WL 1024809, at *7 (Del. Ch. Apr. 6, 2022) (dismissing newly asserted aiding and abetting claim introduced in post-trial briefing because it was “too late” and the argument was waived); CanCan Dev., LLC v. Manno, 2015 WL 3400789, at *22 (Del. Ch. May 27, 2015) (same), aff’d, 132 A.3d 750 (Del. 2016); see also In re Est. of DeGroat, 2020 WL 2078992, at *26 (Del. Ch. Apr. 30, 2020) (finding that defendant had waived counterclaim by failing to present evidence on the claim at trial and only “referenc[ing] the claim briefly in post-trial briefing”).
103 abetting claims in post-trial briefing.602 This general approach derives from the principle
that “[p]leadings are intended to provide fair notice to the opposing party of the legal and
factual theories and claims to be litigated.”603
Rule 15(b) authorizes post-trial amendments to the pleadings to conform to issues
“tried by express or implied consent of the parties.”604 It is “designed to cure the situation
where the course of the trial departs so materially from the image of the controversy
pictured in the pleadings or by the discovery process that it becomes necessary to adjust
the pleadings to reflect the case as it actually was litigated in the courtroom.”605 Implied
consent can arise when an opposing party acquiesces to the introduction of evidence that
only relates to the unpled issue.606 To support a finding of implied consent in this context,
“‘it must appear that parties understood evidence introduced without objection was aimed
at the unpleaded issue.’”607
Plaintiffs contend that Vista impliedly consented to amend the pleadings to include
a claim that Vista aided and abetted the sale-process breaches by failing to object to
Plaintiffs’ Rule 15(b) motion at the close of trial, but Plaintiffs did not state the purpose of
its motion when raising it. Rather, Plaintiffs raised its Rule 15(b) motion as “a technical
602 Zhou, 2022 WL 1024809, at *7; CanCan Dev., 2015 WL 3400789, at *22. 603 Zutrau v. Jansing, 2014 WL 6901461, at *7 (Del. Ch. Dec. 8, 2014). 604 Ct. Ch. R. 15(b). 605 Lloyd’s, 2008 WL 2133417, at *9 (cleaned up). 606 Id. at *8. 607 Id. at *9 (quoting Laird v. Buckley, 539 A.2d 1076, 1080 (Del. 1988)). It is this jurist’s preference to consider motions made under Rule 15(b) in the context of post-trial briefing.
104 matter.”608 Nor did the court grant the or invite argument when it was raised.609 The court
deferred the issue for post-trial briefing. Vista’s silence was not consent.
Vista also did not implicitly consent through its actions at trial. The evidence
Plaintiffs introduced did not speak only to a claim for aiding and abetting. All of the
evidence also related to the sale-process claim against Stollmeyer.610 The evidence did not
suggest a new claim, so Vista had no reason to object.
Allowing an amendment at this stage would impose substantial prejudice on Vista.
Neither party raised the claim in their pre-trial briefs.611 Vista had no reason to mount a
defense to the claim at trial.
Plaintiffs argue that they alerted Vista to the potential claim by identifying the
following as an open issue of law and fact that remains to be litigated in the pre-trial order:
“Whether Vista aided and abetted the breaches of fiduciary duty by Stollmeyer and/or the
other Mindbody directors in approving the Merger, recommending the Merger to
Mindbody’s stockholders, and seeking stockholder approval of the Merger based on false
and misleading disclosures[.]”612 On different facts, that could be enough to preserve an
issue, but not here. Plaintiffs needed to do more to put Vista on notice that it faced a claim
for aiding and abetting sale-process breaches. Plaintiffs may not advance that claim.
608 Trial Tr. at 2547:24–2548:6. 609 Id. 610 Post-Trial Arg. Tr. at 53:3–5. 611 Dkt. 443 (Pls.’ Pre-Trial Br.); Defs.’ Pre-Trial Br. 612 PTO ¶ 133.
105 Based on Plaintiffs’ failure to timely assert its claim, Plaintiffs may not advance a
claim for aiding and abetting based on Stollmeyer’s sale-process breaches.
2. The Disclosure Breaches
In contrast to their failed claim for aiding and abetting sale-process breaches,
Plaintiffs proved that Vista aided and abetted disclosure breaches.
To prevail on an aiding and abetting claim after trial, a plaintiff must demonstrate:
“(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary’s duty, . . .
(3) knowing participation in that breach by the defendants, and (4) damages proximately
caused by the breach.”613 Generally, a plaintiff bears the burden of proving a claim for
aiding and abetting.614
Of the four elements, the first is not disputed (Stollmeyer was a fiduciary), the
second is established (Stollmeyer breached his duty of disclosure), and the fourth
(damages) is addressed in the next section. This section focuses on the third element,
knowing participation.
“The element of knowing participation involves two concepts: knowledge and
participation. To establish knowledge, ‘the plaintiff must demonstrate that the aider and
613 Malpiede, 780 A.2d at 1096. 614 In re Rural Metro Corp., 88 A.3d at 85 & n.11 (collecting cases). The second element of a claim for aiding and abetting—a fiduciary breach—presents a recurring exception to the general rule of burden allocation. Often, the burden of proof for the predicate claim of breach shifts to the defendant fiduciaries. For example, under enhanced scrutiny, the defendant fiduciaries bear the burden of proving the absence of a fiduciary breach. If the claims against the fiduciaries are tried and the fiduciaries fail to satisfy their burden, then the finding of breach applies to the aiding and abetting claim. The court need not re- analyze the claim for fiduciary breach with the plaintiff bearing the burden of proof.
106 abettor had actual or constructive knowledge that their conduct was legally improper.’”615
The standard for knowing participation is “stringent” and “turn[s] on proof of scienter.”616
“‘[T]he requirement that the aider and abettor act with scienter makes an aiding and
abetting claim among the most difficult to prove.’”617 “[T]he question of whether a
defendant acted with scienter is a factual determination.”618
Vista knew that the Proxy Materials omitted the pre-process disclosures. Vista
knew that Stollmeyer had said on September 4 that he was tired and looking for a “good
home” for his company. Vista knew that Stollmeyer reiterated his intention to explore a
take-private at the CXO Summit. Vista knew that its expression of interest to Stollmeyer
contemplated a price based on a premium over market and envisioned retaining some
members of management. Vista knew that Stollmeyer called one of its portfolio company
CEOs as a reference. Vista knew that Chang had tipped them on November 6 about
Stollmeyer’s minimum price of $40 per share. Vista knew that Stollmeyer had tipped them
on November 10 about the timing of the sale process. Vista knew that on November 17,
Saroya had invited Stollmeyer to a charity event in Miami. Other than Stollmeyer (and on
some issues, Chang), Vista was the only party who knew this information.
Vista knew the significance of the information that was omitted from the Proxy
Materials. Vista scrubbed the same incriminating information from the Investment
615 Presidio, 251 A.3d at 275 (quoting RBC, 129 A.3d at 862). 616 Id. 617 Id. (quoting RBC, 129 A.3d at 865–66). 618 RBC, 129 A.3d at 862.
107 Committee materials. Stahl texted Klomhaus before the Investment Committee meeting
to remind him, “dont tell them about process.”619 Vista changed the slide deck to omit the
statement that “Qatalyst Partners call[ed] Vista to indicate that Mindbody will come to
market” in late October 2018620 and falsely assert that Vista was not contacted about a
potential sale until November 30.621 Vista changed the deal-team memorandum to omit an
entire paragraph about Stollmeyer’s interactions with Vista from August through
November, including Stollmeyer “reiterating” at the CXO “his intention to explore a take-
private for Mindbody.”622 Stahl later texted Saroya after Mindbody filed its preliminary
proxy statement to remind him to stick to this story that “Jeff called you on 11/30 inviting
us into the process.”623 Vista hid these details precisely because they did not reflect well
on them. This all sheds light on Vista’s knowledge.
Plaintiffs also proved that Vista participated in the breach. “For purposes of a board
decision, the requirement of participation can be established if the third party ‘participated
in the board’s decisions, conspired with [the] board, or otherwise caused the board to make
the decisions at issue.’”624 “Because the involvement of secondary actors in tortious
conduct can take a variety of forms that can differ vastly in their magnitude, effect, and
619 JX-758. 620 JX-739 at 6. 621 JX-781 at 7. 622 Compare JX-1461 at 1, with JX-1462 at 1. 623 JX-1066. 624 In re PLX Tech. Inc. S’holders Litig., 2018 WL 5018535, at *48 (Del. Ch. Oct. 16, 2018), aff’d, 211 A.3d 137 (Del. 2019) (quoting Malpiede, 780 A.2d at 1098).
108 consequential culpability, the element of ‘knowing participation’ requires that the
secondary actor have provided ‘substantial assistance’ to the primary violator.”625
The Merger Agreement introduced a contractual obligation for Vista to correct any
material omissions in the Proxy Materials. The Merger Agreement mandates that
Mindbody “may not file the Proxy Statement or any Other Required Company Filing with
the SEC without first providing [Vista] and its counsel a reasonable opportunity to review
and comment thereon[.]”626 If Vista discovered that any information omitted from the
Proxy Materials would result in a materially misleading disclosure, the Merger Agreement
obligated Vista to “promptly notify [Mindbody], and an appropriate amendment or
supplement to such filing describing such information will be promptly prepared and filed
with the SEC.”627
In accordance with this contractual language, Vista had multiple opportunities to
review the Proxy Materials. Saroya, Stahl, and Klomhaus routinely received copies of
Mindbody’s proposed disclosures before filing. Saroya and Stahl both reviewed the
preliminary proxy statement on January 5, and both approved the proposed language.628
Stahl and Klomhaus both received and reviewed the definitive proxy statement on January
In re Dole Food Co., Inc. S’holder Litig., 2015 WL 5052214, at *41 (Del. Ch. Aug. 15, 625
2015) (quoting Kuhns v. Bruce A. Hiler Delaware QPRT, 2014 WL 1292860, at *21 (Del. Ch. Mar. 13, 2014)). 626 JX-1138 at 157. 627 Id. at 158. 628 JX-1044.
109 21, and neither suggested any changes to the disclosures.629 Vista participated in the
drafting of the Proxy Materials.
This court has described “an aiding and abetting claim based on a third-party’s
alleged failure somehow to prevent a board from providing misleading disclosures” as
“resting on thin ice.”630 Here, the ice is plenty thick. Vista had an obligation to correct the
material omissions discussed above and failed to do so. Vista thus withheld information
from the stockholders. Vista is liable for aiding and abetting in Stollmeyer’s process-based
disclosure breaches.
C. Damages
“Once a breach has been established, this court’s powers are complete to fashion
any form of equitable and monetary relief as may be appropriate.”631 “Delaware law
dictates that the scope of recovery for a breach of the duty of loyalty is not to be determined
narrowly.”632 “Damages must be ‘logically and reasonably related to the harm or injury
for which compensation is being awarded,’”633 but “[a]s long as there is a basis for an
estimate of damages, and the plaintiff has suffered harm, mathematical certainty is not
629 JX-1141. 630 Xura, 2018 WL 6498677, at *15. 631 Dole, 2015 WL 5052214, at *44 (cleaned up). 632 Thorpe v. CERBCO, Inc., 676 A.2d 436, 445 (Del. 1996). 633 Dole, 2015 WL 5052214, at *44 (quoting In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 773 (Del. 2006)).
110 required.”634 Any uncertainties in calculating damages must be “resolved against the
wrongdoer.”635
Plaintiffs have proven that Stollmeyer breached the duty of loyalty and committed
disclosure violations and that Vista aided and abetted in the disclosure violations. They
seek transaction damages for their sale-process claim in the amount of $3.50 per share and
quasi-appraisal damages for their disclosure claim in the amount of $5.75 per share. In
response, Defendants defend the deal price as more than fair and further argue that
Plaintiffs’ disclosure claims can only generate nominal damages.
1. Damages For The Sale-Process Breaches
As a remedy for their sale-process claim, Plaintiffs seek damages from Stollmeyer
in the amount that Vista would have paid, which Plaintiffs peg at $40 per share. The lost-
transaction theory of damages finds firm footing in Delaware law. As Vice Chancellor
Laster has explained:
When seeking post-closing damages for a breach of fiduciary duty in a sale process, the measure of damages logically depends on what the plaintiffs contend would have happened absent the breach. If the plaintiffs prove that the defendants could have sold the corporation to the same or to a different
634 In re S. Peru Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 814 (Del. Ch. 2011) (quoting Bomarko, Inc. v. Int’l Telecharge, Inc., 794 A.2d 1161, 1184 (Del. Ch. 1999), aff'd, 766 A.2d 437 (Del.2000)); see also Red Sail Easter Ltd. P’rs, L.P. v. Radio City Music Hall Prod., Inc., 1992 WL 251380, at *7 (Del. Ch. Sept. 29, 1992). 635 Thorpe v. CERBCO, Inc., 1993 WL 443406, at *12 (Del. Ch. Oct. 29, 2013); see also Dole, 2015 WL 5052214, at *46 (applying wrongdoer rule).
111 acquirer for a higher price, then the measure of damages should be based on the lost transaction price.636
That is true even if the merger price falls within the range of reasonableness. “Factors such
as . . . secret conflicts or fraud could lead a court to hold that a transaction that fell within
the range of fairness was nevertheless unfair compared to what faithful fiduciaries could
have achieved. Under those circumstances, the appropriate remedy can be a ‘fairer’
price[.]”637
In response, Defendants argue the lost transaction price should supply the measure
of damages only when a controller sets out to extract value rapaciously from the minority
or freezes out “the minority to capture the value of opportunities that the corporation was
on the verge of achieving and in which the minority would otherwise have shared.”638 They
argue that where, as here, the liable party did not reap the rewards of the lowered deal price
directly, the lost transaction price serves as an inequitable measure of damages.
Defendants cite Reis v. Hazelett Strip-Casting Corp., but it does not stand for the
limiting principle that they advance.639 In Reis, the court applied entire fairness review to
a controller-led reverse stock split under 8 Del. C. § 155. In granting relief, the Reis court
recognized the “remedial breadth afforded by a plenary breach of fiduciary action” and its
636 PLX, 2018 WL 5018535, at *51 (emphasis added); see also Columbia Pipeline, 2021 WL 772562, at *56 & n.26 (citation and quotation marks omitted) (collecting authorities). 637 ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *19 (Del. Ch. July 21, 2017) (collecting authorities), aff’d, 184 A.3d 1291 (Del. 2018). 638 Reis, 28 A.3d at 467–68; see also Defs.’ Opening Post-Trial Br. at 100–02. 639 Defs.’ Opening Post-Trial Br. at 100–02.
112 statement that, “[d]epending on the facts and the nature of the loyalty breach, the answer
can be a ‘fairer’ price.”640
Defendants do not point to any other authority that would limit the availability of
lost-transaction damages to controller transactions. Such a rule ignores the harm to the
injured class and would run contrary to the bedrock principle that “[o]nce a breach of duty
has been established, this court’s ‘powers are complete to fashion any form of equitable
and monetary relief as may be appropriate.’”641
Alternatively, Defendants dispute that Vista would have paid $40 per share. To be
clear, the record reflects that Vista had authority to bid up to $40 per share, but that does
not mean that Vista would have bid that amount. In the Investment Committee materials,
$40 was at the highest end of Vista’s modeling. Using the same private equity model, H&F
saw “no path to $40.”642 If Mindbody had been able to introduce competition, then Vista
might have stretched to reach $40 per share, but Vista also could have declined to go that
high.
The internal Vista bets provide the most compelling evidence as to what Vista would
have paid. Recall that Vista employees, including the deal team members, bet on what the
deal price would be in a range of $36.50 (the then-current offer) and $40 (the high-end of
640 Reis, 28 A.3d at 467–68. 641 Dole, 2015 WL 5052214, at *44; see also Thorpe, 676 A.2d at 445 (“Delaware law dictates that the scope of recovery for a breach of the duty of loyalty is not to be determined narrowly.”). 642 JX-951.
113 the approved range). The line was at $37.50. Over half guessed that the price would be
greater than $37.50, and the highest prediction by a deal team member was $38.50/share.
Two of Vista’s most informed deal team members believed that the deal price was likely
to be $37.50.643 Only one employee, who was not on the deal team, thought that Vista
would pay $40.
The evidence demonstrates that Vista would have paid $37.50 had Stollmeyer not
corrupted the process. If Mindbody had countered a second time off Vista’s $36.50 figure,
such as by matching Vista’s $1.50 increment and going from $40 to $38.50, then Vista
would have made a further move. This would not have been outlandish—Qatalyst’s pitch
deck showed $38.50 per share as corresponding to the revenue multiple Vista had paid in
its Apptio acquisition.644 Whether Vista split the difference by going straight to $37.50 or
engaging in more fractional bidding, the likely result was a deal at $37.50. Plaintiffs are
therefore entitled to lost-transaction damages in the amount of $1 per share.
2. Damages For The Disclosure Breaches
Plaintiffs seek quasi-appraisal damages on their disclosure claims, which is a
measure of compensatory damages. The Delaware Supreme Court has held that when a
plaintiff seeks more than nominal damages, the plaintiff must prove “reliance [and]
causation.”645 Plaintiffs made no effort to prove either. Plaintiffs therefore are only entitled
to nominal damages.
643 JX-883. 644 JX-593 at 30. 645 Dohmen v. Goodman, 234 A.3d 1161, 1175 (Del. 2020).
114 In this context, nominal need not be minimal. In Weinberger,646 Chancellor Brown
was instructed on remand to award damages for a breach of fiduciary duty where the breach
turned on the failure to disclose the substance of the now famous Arledge-Chitea report.
Chancellor Brown did not believe the plaintiff class had suffered any compensatory
damages, leaving nominal damages as the only possible remedy. He chose to award
damages of $1 per share on a deal price of $21 per share, reflecting damages equal to 4.8%
of the deal price. He reasoned as follows:
The approval of the minority secured in the face of the inadequate proxy information enabled [the acquirer] to get what it wanted at the price it wanted to pay, and it seems without question that achieving sole ownership of [the target] has proven quite profitable to [the acquirer]. Under these circumstances, I feel that the minority should be compensated for the wrong done to them even though a damage figure cannot be ascertained from a comparison of selected stock values and hypotheticals with any degree of precision. Quite simply, equity will not suffer a wrong without a remedy.647
This court has cited that ruling favorably.648
Chancellor Brown derived the $1-per-share remedy by relying upon evidence that,
at the time of the merger, a per-share price of $22 rather than the $21 per share actual price
would have represented a beneficial deal for the acquirer.649 The acquirer’s expert also
646 1985 WL 11546, at *9–10. 647 Id. 648 See, e.g., Oliver v. Boston Univ., 2006 WL 1064169, at *35 (Del. Ch. Apr. 14, 2006) (“Nominal damages of $1.00 per share have been awarded in certain circumstances in which a rational basis can be found in the record for the award.”) (citing Weinberger, 1985 WL 11546, at *10). 649 Weinberger, 1985 WL 11546, at *10.
115 conceded that $22 per share would “not have been out of line for the acquisition” and
opined that the information available at the time of the merger would have supported a fair
price range of $20–22.650 The award in Weinberger thereby approximated a fair division
of the merger surplus comparable to what could have been reached if the information had
been shared.
Here, as in Weinberger, the Company’s stockholders were harmed by the inadequate
disclosures, which deprived them of a fair opportunity to vote down the Merger. As in
Weinberger, the precise extent of the harm cannot be established.651 It is clear, however,
that a $1 increase in the per share price would not have rendered the deal undesirable for
Vista, nor would it represent a windfall to the class. Based on a deal price of $36.50 per
share, an award of $1 per share reflects damages of 2.7%. In these circumstances, a $1-
per-share award of nominal damages is appropriate.652
3. Stollmeyer And Vista Are Jointly And Severally Liable For The Damages Award.
“A defendant who aids and abets a breach of fiduciary duty is jointly and severally
liable for the damages resulting from the breach. Under this liability standard, ‘the injured
650 Id. 651 Id. 652 This case is distinguishable from another circumstance where the Delaware Supreme Court questioned the rationale behind a $1-per-share award. In Gaffin v. Teledyne, Inc., 611 A.2d 467 (Del. 1992), this court had awarded $1 per share in damages based on Weinberger without providing any accompanying evidentiary support. The Supreme Court noted that nothing in the evidentiary record supported the trial court’s award. Because the defendant failed to cross-appeal on that issue, however, the award remained intact. Id. at 476. By contrast, here there is ample evidence to support the $1-per-share award.
116 person is entitled to recover his damages from [any] of the tortfeasors, without distinction,
subject to the limitation that his total recovery may not exceed the full amount of his
damage.’”653 This decision has already found that Stollmeyer breached his duty of loyalty
and duty of disclosure, and that Vista aided and abetted in Stollmeyer’s duty of disclosure
breach. As a result, Stollmeyer and Vista jointly and severally liable for the damages award
of $1 per share.
Only Stollmeyer is liable for the damages award of $1 per share on the sale-process
claims. Plaintiffs, however, are not entitled to a double recovery. All that the class can
recover is $1 per share.
D. Interest And Costs
“A successful plaintiff is entitled to interest on money damages as a matter of right
from the date liability accrues.”654 Under Delaware law, where neither party submits
evidence showing the appropriate rate of interest, the court typically awards 5% over the
Federal Reserve discount rate compounded quarterly. Such an award is appropriate here.
Court of Chancery Rule 54(d) provides that costs “shall be allowed as of course to
the prevailing party unless the court otherwise directs.”655 Under Rule 54(d), the
653 In re Rural Metro Corp. S’holders Litig., 102 A.3d 205, 221 (Del. Ch. 2014) (citations omitted) (quoting Brown v. Comegys, 500 A.2d 611, 613 (Del. Super. 1985)); see also Laventhol, Krekstein, Horwath & Horwath v. Tuckman, 372 A.2d 168, 170 (Del. 1976) (“Persons who knowingly join a fiduciary in an enterprise which constitutes a breach of his fiduciary duty of trust are jointly and severally liable for any injury which results.”) (citing Jackson v. Smith, 254 U.S. 586 (1921)). 654 Summa Corp. v. TransWorld Airlines, Inc., 540 A.2d 403, 409 (Del. 1988). 655 Ct. Ch. R. 54(d).
117 “prevailing” party is a party who successfully prevails on the merits of the main issue or
the party who prevailed on most of their claims.656 Since Plaintiffs have prevailed on their
claims against Stollmeyer and Vista in this action, they are entitled to their related costs.
III. CONCLUSION
Judgment will be entered in Plaintiffs’ favor and against Stollmeyer on Count I for
breach of fiduciary duty. Judgment will be entered in Plaintiffs’ favor and against Vista as
to Count II for aiding and abetting breaches of fiduciary duty. Defendants are jointly and
severally liable for $1 per share in damages, plus interest and costs consistent with this
opinion. The parties shall confer on a form of order implementing this decision.
Plaintiffs’ petition for appraisal was litigated in parallel with their breach of
fiduciary duty claims. The Delaware Supreme Court has instructed that when a merger
gives rise to both a plenary action for breach of fiduciary duty and a statutory appraisal
proceeding, the court should rule on the plenary claims first, because a finding of liability
and the resultant remedy could moot the appraisal proceeding.657 “[R]egardless of the
Court’s substantive findings, the plaintiffs are limited to, and statutorily assured of, a single
recovery.”658 This decision therefore does not reach the appraisal claims. The parties shall
656 Brandin v. Gottlieb, 2000 WL 1005954, at *27 (Del. Ch. July 13, 2000). 657 Cede & Co. v. Technicolor, Inc., 542 A.2d 1182, 1189 (Del.1988). 658 Bomarko, 794 A.2d at 1177.
118 confer and inform the court whether further proceedings to address the appraisal claims are
necessary.659
659 See Dole, 2015 WL 5052214, at *47 (“It may be that the parties can resolve these issues in the first instance. Rather than burdening an overly long opinion with further analysis of appraisal and its contingent relevance, the parties shall meet and confer about whether further rulings are necessary.”).
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Cite This Page — Counsel Stack
In Re Mindbody, Inc. Stockholder Litigation, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-mindbody-inc-stockholder-litigation-delch-2023.